What is a bimonthly mortgage loan?
A semi-monthly mortgage payment is a mortgage plan in which half of the scheduled monthly payment is made twice a month. This plan should not be confused with a bi-weekly plan, where half of the scheduled monthly payment is made every two weeks.
Sometimes spelled as “semi-monthly” mortgage payments, these plans are usually set up for the customer to pay on the 1st and 15th of each month. Under some bi-monthly plans, it is even possible to make additional payments on top of the bi-monthly payments.
Key points to remember
- Semi-monthly mortgage payments can help homeowners pay less interest on their home loans.
- Semi-monthly mortgage payments are slightly different from bi-weekly mortgage payments.
- Not all mortgage lenders allow customers to make semi-monthly payments. It depends on the lender.
–
–
–
Semi-Weekly Mortgage vs Bi-Weekly Mortgage
The difference between a bi-monthly plan and a bi-weekly plan is subtle. In a bi-weekly plan, payments are made every two weeks, which is not quite the same as two payments per month, since most months are slightly longer than four weeks.
Specifically, a bi-weekly plan results in two more payments per year than on a bi-weekly plan. In other words, 24 payments are made annually on a bi-monthly plan, while 26 payments are made annually on a bi-weekly plan.
It may seem like a small difference, but it can really add up over the course of a mortgage. Just as a bi-weekly mortgage can build equity in your property faster than a monthly plan, a bi-weekly mortgage can build equity even faster than that. Therefore, these plans are perfect for people who want to pay off their mortgage as quickly as possible.
Semi-monthly mortgage payments can help increase the equity in your home faster than a monthly payment.
–
–
–
Advantages and disadvantages of semi-monthly mortgages
A semi-monthly plan could shorten the overall term of the mortgage to some extent. Some semi-monthly mortgages may come with a higher payment to further reduce the interest and principal balance compared to regular monthly payments. It may be possible to convert to a semi-monthly mortgage when refinancing under a new mortgage, which could be lower to speed up the payment process.
A semi-monthly mortgage plan will result in interest savings over the term of the mortgage. It does this by reducing the principal of the mortgage as each payment is received, as opposed to the first payment of the month being held by the lender until the second payment of the month is received (at which time there, the full monthly payment is made).
In a semi-monthly mortgage, spreading the payments can reduce the interest that would have to be paid. However, the lender may or may not offer such a payment option. Additionally, a lender could charge an additional fee to participate in a semi-monthly mortgage plan, which could eliminate any potential savings that may have been realized.
With some semi-monthly mortgages, the lender can always withhold the first payment, another scenario that would eliminate any savings that might have been made. Although such a plan would give the borrower more flexibility in how they repay their mortgage, there would be no tax benefit. The terms of any semi-monthly mortgage should define when and how payments will be applied to the principal balance.
There is some debate about the effectiveness of semi-monthly mortgage plans, particularly because most mortgage lenders calculate interest as a monthly cost, not a semi-monthly cost. So, while it is possible to reduce the overall interest due, the end result might just be the elimination of one payment or a few.
–
