If your goal is to use your monthly payments to get ahead on the mortgage by making the equivalent of an extra payment every year you might wish to consider this option used by many to lower the principal balance of the loan faster.

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Home Loans 101: Why Some People Pay Mortgages Twice a Month

September 30, 2021

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Do you need to make bi-weekly payments on a mortgage? It's not a requirement but if your goal is to use your monthly payments to get ahead on the mortgage by making the equivalent of an extra payment every year you might wish to consider this option used by many to lower the principal balance of the loan faster.

Making an extra payment using biweekly payments on an FHA home loan is not a new idea. And it is not a bad idea, either.

 If you become a homeowner involved in building equity by lowering your loan principal faster than scheduled, you'll find biweekly mortgage payments can gradually reduce down the amount owed on the loan so that payoff comes earlier.

If you choose an accelerated payment schedule with an FHA loan, you'll find that FHA mortgages do not hit you with a prepayment penalty. 

You read that correctly--a homeowner cannot be billed extra for early payoff of the FHA loan amount, though your lender may require a certain procedure for the final payment and you should learn what that procedure is sooner instead of later if it applies to you.

Why split your normal monthly payment into one going out every two weeks? The federal government consumer watchdog, the Consumer Financial Protection Bureau (CFPB) explains on its official site that in a bi-weekly payment plan you can ask your lender to collect half your mortgage payment at a time every two weeks. 

This is a benefit because doing so means you make 26 payments over the full year--do the math over a period of 52 weeks. 

When you run the calculations you’ll see paying biweekly does provide an advantage--the extra payment every year you make? Over 15 or 30 years? That can play a big factor in lowering your principal balance.

 “By making additional payments and applying your payments to the principal,” CFPB explains, “you may be able to pay off your loan early. Before choosing a bi-weekly payment, be sure to review your loan terms to see if you will be subject to a prepayment penalty if you do so.”

The CFPB admonition to search for a prepayment penalty is sound advice in most cases but take comfort in knowing that FHA home loans do not permit such penalties. 

That said, if you want a formal arrangement for your biweekly payment options,  do not forget to ask the lender if there are fees to be set up on a bi-weekly plan.

If you choose to approach the mortgage in a bi-weekly manner but do not ask your loan officer to formally set up such a plan, make sure your payments (both of them) arrive BEFORE the due date on your monthly payments. 

Missing your due date can hurt your credit scores even in cases where you are paying half ahead of time.

You do not need a formal arrangement--there's no crime to simply paying more at once instead of splitting up two payments. There are plenty of options to reduce the number of years you pay ono your home loan, any additional amount you pay above the minimum can help you reach the goal of paying off the loan faster.

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