When deciding between making bi-weekly mortgage payments or making one additional payment per year toward the principal, both options have their benefits.
Here’s a comparison to help you determine which might be better for your situation:
### Bi-Weekly Payments
1. **How It Works**:
You make half of your monthly mortgage payment every two weeks.
Because there are 52 weeks in a year, this results in 26 half-payments, equivalent to 13 full monthly payments per year.
2. **Benefits**:
– **Interest Savings**: By paying more frequently, you reduce the principal balance faster, leading to interest savings over the life of the loan.
– **Faster Payoff**: You effectively make one extra monthly payment each year, which can shorten the loan term by several years.
– **Budgeting**:
Smaller, more frequent payments may be easier to manage and budget for some people.
3. **Considerations**:
Some lenders may not offer a true bi-weekly payment plan or might charge fees for setting it up.
Ensure your lender processes payments bi-weekly rather than holding them until the end of the month.
### One Extra Annual Payment
1. **How It Works**: You make your regular monthly payments and then make an additional lump-sum payment toward the principal once per year.
2. **Benefits** The additional lump-sum payment directly reduces the principal balance, leading to interest savings over the life of the loan.
3. **Considerations**: Requires discipline to save for and make the extra payment each year.
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### Final Decision
If you are disciplined and can handle making regular, smaller payments, bi-weekly payments might be better for gradually reducing your principal and saving on interest.
If you prefer the flexibility of making one lump-sum payment and can manage your finances to save up for it, making an extra annual payment might suit you better.
Both strategies are effective; choose the one that aligns best with your financial habits and preferences.
