Bi-Weekly vs. Accelerated Bi-Weekly Mortgage Payments: What’s the Difference?
Bi-weekly mortgage payments mean paying half your monthly mortgage every two weeks, resulting in 26 payments annually. Accelerated bi-weekly payments also split the mortgage in half but lead to 27 payments a year, one extra towards the principal, reducing interest and loan term.
People often confuse these terms because both involve paying every two weeks. However, accelerated bi-weekly payments offer a strategic advantage by paying down the principal faster, which can save thousands in interest over the loan’s life.
Key Differences
The main difference lies in the number of payments per year. Bi-weekly payments result in 26 payments, maintaining the regular loan term. Accelerated bi-weekly payments add one extra payment annually, shortening the loan term and reducing interest.
Which One Should You Choose?
Choose bi-weekly payments if you prefer sticking to the original loan schedule. Opt for accelerated bi-weekly if you want to pay off your mortgage faster and save on interest. Consider your budget and long-term financial goals when deciding.
Examples and Daily Life
For example, if your monthly payment is $1,000, bi-weekly payments would be $500 every two weeks, totaling $13,000 yearly. Accelerated bi-weekly payments also start at $500 but result in $13,500 yearly, with one extra payment going directly to the principal.
How do bi-weekly payments affect my loan term?
Bi-weekly payments don’t change your loan term. You’ll still pay off your mortgage in the originally agreed period, just in smaller, more frequent installments.
Can I switch to accelerated bi-weekly payments mid-loan?
Yes, you can usually switch to accelerated bi-weekly payments at any time. Check with your lender for specific policies and potential fees.
Do both payment methods reduce interest?
Only accelerated bi-weekly payments reduce interest. By making one extra payment annually towards the principal, you lower the total interest paid over the life of the loan.