Buying a home brings with it paperwork and processes that can sometimes be stressful to navigate, and mortgages are often a major source of that stress. Generally, mortgages require one payment per month for a total of 12 payments per year. If you have a typical 30-year mortgage with fixed rates, it’ll take approximately 360 payments to pay off the loan in full.

Interestingly enough, mortgage payments are actually split into two parts: the portion designated for the principal and the portion designated to the interest. The principal portion gets applied toward the balance of the loan while the interest covers the cost to borrow the money from the bank. Once the loan is matured, the balance between the two will shift because during the earlier part of the mortgage, the interest portion is much larger and that’s why the balance of the loan itself will be barely paid into at all in the first five years.

When homebuyers see the option to choose biweekly mortgage payments, many jump at the choice because they view that as being an easy way to pay off their mortgage faster. This isn’t always the most ideal choice as it comes with risks you should be aware of before you make any decisions.

To put it simply: choosing biweekly payments doesn’t mean you pay less interest. Even though you’re choosing to pay your mortgage biweekly, you still can’t circumvent the amortization schedule, even though there are 13 payments instead of 12. Since you can’t technically make 13 payments per year, that extra payment is applied directly to the balance of the loan. On average, biweekly payments will shorten the majority of loans by about four years. Sounds like a great plan, right? It is, but the best results come from self-managing these payments which isn’t obligatory.

If you’re looking to cut down on your principal loan faster, you can actually achieve the same results as a biweekly mortgage payment plan by adding 1/12 of the mortgage payment to the principal every month. This method will help you achieve the same results without having to make two payments every month. The best part? If you forget to add the extra 1/12 payment, you don’t risk injuring your credit for missing a payment as it’s optional.

Remember that tweaking your payment schedule isn’t your only option when it comes to making a bigger dent in your payments. When mortgage rates are low, you can even consider getting a whole new mortgage. Extra payments will help you pay your loan off faster but not as fast as a no-closing cost refinance can. This allows you to put some of that money you’re saving back into the loan’s balance and your payoff date will move even closer.

Your lender will present multiple options and it’s important that you look at each one carefully to calculate the risks involved and determine which one is best suited to your goals and budget. Don’t be afraid to think outside the box and do your research to find the best repayment strategy for you. Want to learn more? Contact us today and we can kick-start the conversation!