Bi-monthly payments versus monthly payments | Loans Quebec

Image result for vsConsumers who opt for bi-monthly payments tend to believe that it would allow them to pay back the mortgage faster. However, this is not the ideal solution. Bi-monthly payments seem very interesting, but this option is not without risk. In fact, there are other, less expensive ways to pay for your home.

Typical mortgage payments

Typical mortgage payments are accompanied by a monthly payment, which equates to 12 payments per year. If the consumer opts for a 30-year mortgage, he will need 360 payments to repay the loan in full.

Mortgage payments are divided into two parts: one for the amount and one for the interest. The portion for the amount goes to repay the total amount of the loan while the other part is used to repay the interest. Once the loan expires, the balance between the main part and the interest changes. During the beginning of the mortgage, the interest is much greater. It is for this reason that after 5 years of payments, the principal amount has hardly been repaid.

Bi-monthly payments do not necessarily imply less interest

Bi-monthly payments (twice a month) will not allow you to change the amortization schedule, despite the 24 annual payments. Technically, you can not make 24 payments a year for the 24th amount to be used to repay the principal amount. The bi-monthly payments will, however, allow you to shorten the term of the mortgage by several years. Yes, bi-monthly payments work, but you’ll want to avoid them for several reasons.

  • Bi-monthly payments offer better results;
  • Bi-monthly payments are not required

The same results can be obtained with regular monthly payments by adding to the amount paid 1/12 of the principal amount. Thus, you will achieve the same results as with bi-monthly payments, but with only one payment per month. In addition, if you do not pay the additional 1/12, your loan will not be affected.

Extra payments are not the only option

For example, when mortgage rates are low, it may be more profitable to take a new loan. Additional payments can speed up the repayment, but they will not accelerate it as fast as refinancing without termination costs. If the consumer opts for this option, he can use his monthly savings to repay the loan and the duration of the mortgage will only decrease.

When creditors present different repayment options, be sure to do a search before. Some options may seem advantageous on paper, but these are not the only options available on the market. Get out of the way and do some research before you commit. Different strategies are available to you and they will work differently for each person.

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