Purchasing a home is a significant commitment with your mortgage payment likely being your highest monthly cost. When choosing a mortgage, various options exist like selecting between 15 or 30 years, fixed or adjustable rates. Additionally, there are also different methods of making your payment.
Some individuals find semi-monthly mortgage payments more convenient than a single monthly payment.
What Exactly Are Semi-Monthly Mortgage Payments?
Opting for semi-monthly mortgage repayments typically means you’ll make half of your monthly payment at the beginning of the month (1st) and pay the remainder in the middle of the month (15th).
What Are the Benefits of Semi-Monthly Mortgage Payments?
Several benefits come along with semi-monthly mortgage payments:
1. Payments may be easier to handle. If your paydays align with the 1st and 15th of the month, splitting your monthly mortgage payment can be more manageable, as you’ll be making smaller payments that coincide with your paycheck’s arrival.
2. You may potentially save money in the long term. Since you’ll be making two payments per month, you decrease the amount of interest accrued over the lifespan of the loan. Traditional single-month payments see the interest rising over 30 or 31 days, but with semi-monthly payments, the interest never accumulates over more than 15 days.
What’s the Difference Between Semi-Monthly and Bi-Weekly Mortgage Payments?
Though often confused, semi-monthly and bi-weekly payments are not the same. Semi-monthly payments are done on the 1st and 15th of each month. On the other hand, bi-weekly payments are made every two weeks resulting in an equivalent of 13 monthly payments annually. This extra yearly payment can be a powerful tool in reducing your mortgage balance.
Which Is More Effective, Semi-Monthly or Bi-Weekly Payments?
While semi-monthly payments may save a bit of overall interest and make monthly mortgage payments seem more manageable, the impact of bi-weekly payments is much more significant. With the additional annual payment, these can help you clear a 30-year mortgage in just over 25 years, saving a substantial amount in interest. Thus, if your goal is to reduce your mortgage tenure significantly and save a substantial amount on interest, bi-weekly payments may be the optimal choice.
