Definition of Monthly Mortgage Loans
How does a monthly mortgage loan work?
Monthly mortgage loans vs. weekly loans
Other alternatives to monthly mortgage loans
Definition of Monthly Mortgage Loans
Monthly mortgage loans split the monthly loan payment into two payments. One payment is due in the middle of the month and the other at the end of the month. For example, instead of making 12 monthly payments of $2000 a year, you would make 24 payments of $1000 each.
Not all mortgage loans offer a monthly payment schedule, so you’ll need to ask the lending bank about payment options.
A monthly mortgage loan may offer some benefits if the mid-month due payment is applied to the principal upon receipt by the bank. However, most lenders offer monthly mortgage loans as a convenience tool and do not apply payments until the end of the month, meaning that the monthly mortgage loan usually does not result in interest savings.
How does a monthly mortgage loan work?
Mortgage loan payments are usually calculated based on the loan term, interest rate, and an amortization schedule that divides your costs into monthly payments. If you choose a monthly mortgage loan, the lender will create an amortization schedule that includes two payments each month instead of one.
The monthly schedule can be a good option for homeowners who receive two monthly paychecks and prefer to plan for two smaller payments instead of one large payment at the end of the month. Instead of saving money throughout the month, you can pay the installment as soon as your paycheck arrives – or make the payment more manageable by automating the payments.
Monthly Mortgage Loans vs. Weekly Loans
Monthly mortgage loans differ slightly from weekly loans. A monthly mortgage loan requires payment on average every 15 days, while a weekly loan requires payment every 14 days. This difference may not seem significant, but over the year, the weekly loan includes 26 payments, while the monthly loan has 24 payments.
Those additional payments equate to the value of an extra monthly mortgage payment and can help you pay off your loan a little faster, saving you interest over the life of the loan.
Other alternatives to monthly mortgage loans
Of course, there is no need to pay monthly or weekly. You can stick to the traditional monthly payment schedule for your mortgage loan.
If your goal is to save money by paying less interest on your mortgage, you might target making additional payments on the loan, which are usually applied to the principal. But before doing so, check if your loan imposes a prepayment penalty, which is a fee charged for paying more than the monthly payment. Sometimes, this penalty only applies when you pay off the balance early (like selling the home or refinancing), but it could apply to any additional payments. Before choosing a loan that imposes a prepayment penalty, be sure to discuss it with the lender regarding the circumstances that trigger these fees.
If you have a mortgage loan that imposes a prepayment penalty, you can set up a special savings account and transfer the extra money into it, then apply it to your loan after the penalty period ends. For example, most prepayment penalties only apply during the first three years of the loan, but after that, you can use your savings to pay down the principal without any fees.
If you do not have a mortgage loan that imposes a prepayment penalty, you can create a monthly mortgage loan for yourself by paying part of the payment in the middle of the month and the rest at the end of the month. Just make sure you have paid the full payment by the due date of the monthly payment.
Taking
Monthly mortgages involve splitting the monthly payment into two payments and making 24 payments per year. This structure differs from a monthly mortgage (12 payments per year) and a weekly mortgage (26 payments per year). In some cases, making the loan payment slightly more frequently may save you a small amount of interest. However, this depends on the lender and the loan agreement, and the main benefit is usually convenience, not savings.
Source: https://www.thebalancemoney.com/what-is-a-bimonthly-mortgage-5210262
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