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Mortgage

5 Reasons You Should Make Biweekly Mortgage Payments

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Maybe you’ve heard whispers among friends and family that making biweekly mortgage payments — once every two weeks instead of once a month — can help you pay off your loan sooner. In most cases that’s true, but did you know there are a ton of other benefits, as well?

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If you’re intrigued, stay tuned. We’ll show you exactly how to make biweekly payments work for you and the benefits.

The secret extra payment

If you’re like most people paying your mortgage once per month, you’ll get 12 full mortgage payments in a year.

But what if you make biweekly payments? In that case, either you or your lender will split your payments in half and submit a payment twice each month. For example, if you normally make a $1,000 monthly mortgage payment, you’ll instead make a $500 mortgage payment every two weeks.

This leads to the quirk in the calendar that lets you get ahead. There aren’t a uniform number of days in each month, and so by making biweekly mortgage payments, you’ll make 26 “half-payments,” or 13 “full” payments per year instead of the normal 12 payments. In other words, you make one extra full payment per year, and you won’t even feel it because you’ve budgeted for it.

This extra payment might not seem like much, but over the course of the loan, it has huge effects.

Let’s look at an example. Say you just bought a house and have a $200,000 mortgage with a 30-year loan term, and your interest rate is 4.125% APR. Here’s what will happen if you stick to the regular monthly mortgage plan, versus opting for biweekly mortgage payments:

 

Monthly Payment

Biweekly Payment

Payment amount

$775.44

$387.72

Number of payments per year

12

26

Total Paid per Year

$9,305.28

$10,080.72

Number of Years

30

25 years and 10 months

Total Interest Paid

$119,158.25

$100,077.57

Total cost

$325,158.25

$306,077.57

In this example, making biweekly payments allows you to pay off your mortgage a full four years and two months earlier, and saves you $19,080.68 to boot.

One caveat: Rarely, some lenders will charge you to make biweekly payments, since it’s essentially twice as much work for them to process. If your lender does this, it may be better to stick with your normal monthly payment plan. If you want to make biweekly payments, you can still do so manually for free by setting aside a portion of your paycheck on your own, paying your normal monthly payment, and then submitting an extra payment once per year.

The case for making biweekly mortgage payments

1. Build equity faster

Home equity is the amount of your home that you actually own versus how much you owe your mortgage lender. For example, if your home is worth $200,000 and you still owe $150,000 on your mortgage, you have $50,000 of home equity.

One of the biggest benefits of making biweekly mortgage payments is that you build home equity faster. You may not realize it, but when you are in the early years as a mortgage borrower, the vast majority of your mortgage payment goes toward interest — not the principal balance on your loan. And until you are significantly chipping away at that principal loan balance, you aren’t actually gaining equity (unless, of course, the value of the home increases enough to eclipse your mortgage loan balance).

When you make biweekly payments and manage to squeeze in that extra payment each year, you’ll be making extra payments toward reducing the balance of your loan. And that extra payment will give you a small push toward building equity.

There are a lot of advantages to having as much home equity as possible. If you have enough home equity, you can take out a home equity loan to finance things like home repairs or remodels, for example.

Another example where having more home equity can help you is when you sell your house. Many homeowners are surprised how expensive it can be when they go to sell their home, all thanks to closing costs, which can amount to tens of thousands of dollars on top of your original loan.

That’s a big problem if you don’t have enough equity built up in your home to cover the cost. You might end up actually having to pay to sell your home, and losing your down payment money for your next home to boot. One of the best ways to guard against this is to build up as much home equity as you can as fast as you can, and making biweekly mortgage payments is a good way to do that.

2. Pay less interest over time

When you make a mortgage payment, the bank actually splits up up the money and divvies it out to various things. During the first few years after you take out your mortgage, most of the money will be going toward interest and very little will be going to reducing the balance of your loan (sadly). This process is called amortization, and anyone who’s ever had a loan literally had to pay their dues, especially during those first few years.

But, again, here’s where making biweekly mortgage payments can really help you. Since you’ll be making an extra payment each year, you’ll pay down the principal even faster. This means that each interest payment thereafter will be smaller than if you hadn’t made that extra payment.

Over the course of your loan, this can save you a huge amount of money. For example, if you have a $400,000 mortgage, making biweekly mortgage payments can save you over $38,000 in interest.

3. Pay off your mortgage faster

If you make biweekly payments, you’ll be chipping away at your principal balance faster than normal. We won’t lie — it’ll still seem like you’re paying off the mortgage at a glacial pace, but you’ll have a slightly sharper pick than your neighbor making monthly payments.

If you have a $300,000 mortgage and you’re making biweekly mortgage payments, you can actually shave off four years and two months from your loan. Instead of being in debt for 30 years, you’ll only be in debt for 25 years and 10 months.

4. Drop your PMI payment sooner

In 2017, the average homebuyer bought their home with a 10% down payment. That’s not bad, but for most conventional loans (not including FHA, VA and USDA loans), you’ll need a down payment of at least 20% to avoid paying for private mortgage insurance each month. This fee, which is tacked onto your monthly mortgage payment, protects your lender in case you default on your loan. In other words, it doesn’t even protect you—it protects your lender in case you mess up.

Once you reach 20% equity in your home, you can ask your conventional lender to cancel your PMI payments. If you make biweekly payments, you can actually get there a lot faster because you’ll be paying down the balance of your loan quicker than normal.

Let’s look at an example. If you have a $350,000 mortgage and only put down 10% like most people, you’d owe an extra $164.06 each month to pay for PMI. If you make biweekly payments, you’ll hit 20% equity 13 months sooner than if you were making monthly mortgage payments. That’ll save you an extra $2,132.78 in PMI charges.

5. It’s easier to budget

Even if you’re a super budgeter and on top of your finances, saying goodbye to so much cash at once hurts.

If nothing else, biweekly mortgage payments take the stress out of those big payments. If you’re paid biweekly, it’s even easier — just send in the check each time you get paid, if that’s the due date that you agree on with your lender.

That way, the money won’t be sitting in your account until next month, just begging to be spent on something else and leaving you short of the bill when your monthly mortgage payment does come due. Making biweekly payments in this way can save you a ton of stress in addition to all the financial benefits.

Closing

By default, almost everyone is put on a monthly repayment plan. It’s how we’re conditioned to think about debt: after all, just about every type of loan is paid back on a monthly basis, including credit cards, student loans, auto loans and personal loans. In some cases, like for student loans, you may be able to switch to a biweekly payment plan, but it’s not very common.

That doesn’t mean you need to stick with the mold, though. We’ve shown five great benefits to switching over to a biweekly mortgage payment plan. You’ll:

  • Build equity faster
  • Pay less interest over time
  • Pay off your mortgage faster
  • Drop your PMI payment sooner
  • Budget for housing more easily

If you’re interested in switching to a biweekly mortgage payment plan, the next step is to contact your lender to ask about it. Your future self will thank you.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.

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Mortgage

How to Recover From Missed Mortgage Payments

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Reviewed By

understanding good faith estimate vs loan estimate
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Can you bounce back from a missed mortgage payment or two? The answer is yes, but there’s work involved. After all, your payment history has the greatest impact in determining your credit score.

Falling behind on your mortgage payments can affect your credit and finances, and you could lose your home to foreclosure. It’s critical to be proactive and not wait until it’s too late to get help.

How missed mortgage payments affect your credit

In most cases, mortgage lenders give you a 15-day grace period before charging a fee — often around 5% of the principal and interest portion of your monthly payment — for late payments. But your credit history typically isn’t impacted until you’re at least 30 days behind on a mortgage payment. At this point, your mortgage servicer may report your late mortgage payment to the three major credit reporting bureaus: Equifax, Experian and TransUnion.

Your credit score could drop by 60 to 110 points after a late mortgage payment, depending on where your score started, according to FICO research. Being 90 days late on your loan could lower your score by another 20 points or more.

It can take up to three years to fully recover from a credit score drop after being a month behind on your mortgage, FICO’s research found. Once you’re three months behind on your mortgage, that time can increase to seven years.

Recovering from missed mortgage payments

Falling behind on your mortgage can be a frustrating and scary experience, particularly if you’re facing the threat of foreclosure. Here are some options to help you get back on track after missed mortgage payments:

  • Repayment plan. Your loan servicer agrees to let you spread out your late mortgage payments over the next several months to bring your loan current. When your upcoming payments are due, you’d also pay a portion of the past-due amount until you catch up.
  • Forbearance. Your servicer temporarily reduces or suspends your monthly mortgage payments for a set amount of time. Once the mortgage forbearance period ends, you’ll repay what’s owed by one of three ways: in a lump sum, a repayment plan or by modifying your loan.
  • Modification. A loan modification changes your loan’s original terms by extending your repayment term, lowering your mortgage interest rate or switching you from an adjustable-rate to a fixed-rate mortgage. The goal is to reduce your monthly payment to a more affordable amount.

Be proactive about getting back on track and reaching out to your lender for help instead of waiting until you get late payment notices. If you think you’ll be behind soon or are already a few days behind, make contact now and review your options.

Extra help for homeowners affected by COVID-19

If you’re behind on mortgage payments because of a financial hardship due to the coronavirus pandemic, you may qualify for a mortgage relief program through the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Homeowners who have federally backed mortgages, and conventional loans owned by Fannie Mae or Freddie Mac, can request mortgage forbearance for up to 180 days. They can also request an extension for up to an additional 180 days.

Federally backed mortgages include loans insured by the:

  • Federal Housing Administration (FHA)
  • U.S. Department of Agriculture (USDA)
  • U.S. Department of Veterans Affairs (VA)

Reach out to your mortgage servicer to request forbearance. Even if your loan isn’t backed by a federal government entity, Fannie Mae or Freddie Mac, your servicer may offer payment relief options. You can find your servicer’s contact information on your most recent mortgage statement.

How many mortgage payments can you miss before foreclosure?

Your lender can begin the foreclosure process as soon as you’re two months behind on your mortgage, though it typically won’t start until you’re at least 120 days late, according to the Consumer Financial Protection Bureau. Still, it’s best to check your local foreclosure laws since they vary by state.

Here’s a timeline of how missed mortgage payments can lead to foreclosure.

30 days late

Your lender or servicer reports a late mortgage payment to the credit bureaus once you’re 30 days behind. Your servicer will also directly contact you no later than 36 days after you’re behind to discuss getting current.

45 days late

You’ll receive a notice of default that gives you a deadline — which must be at least 30 days after the notice date — to pay the past-due amount. If you miss that deadline, your servicer can demand that you repay your outstanding mortgage balance, plus interest, in full.

Your mortgage servicer will also assign a team member to work with you on foreclosure prevention options. This information will be communicated to you in writing.

60 days late

Once you’re 60 days late, expect more mortgage late fees, as you’ve missed two payments. Your servicer will send you another notice by the 36th day after the second missed payment. This same process applies for every month you’re behind.

90 days late

At 90 days late, your servicer may send you a letter telling you to bring your mortgage current within 30 days, or face foreclosure. You’ll likely be charged a third late fee.

120 days late

The foreclosure process typically begins after the 120th day you’re behind. If you live in a state with judicial foreclosures, your loan servicer’s attorney will file a foreclosure lawsuit with your county court to resell the home and recoup the money you owe. The process may speed up in nonjudicial foreclosure states, because your lender doesn’t have to sue to repossess your home.

You’re notified in writing about the sale and given a move-out deadline. There’s still a chance you can keep your home if you pay the amount owed, along with any applicable legal fees, before the foreclosure sale date.

Can you get late mortgage payment forgiveness?

If you’ve otherwise had a good payment history but now have one missed mortgage payment, you could try writing a goodwill adjustment letter to request that your servicer erase the late payment information from your credit reports.

Your letter should include:

  • Your name
  • Your account number
  • Your contact information
  • A callout of your good payment history prior to missing a payment
  • An explanation of what led to the late mortgage payment
  • The steps you’re taking to prevent late payments in the future

End the letter by requesting that your servicer remove the late payment from your credit reports, and thank your servicer for their consideration. Print, sign and mail your letter to your servicer’s address.

The letter is simply a request; your servicer isn’t required to grant late mortgage payment forgiveness. If your servicer agrees to remove the late payment info from your credit reports, your credit scores may eventually increase — so long as you continue to make on-time payments.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.

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Mortgage

What Is the Minimum Credit Score for a Home Loan?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

If you’re hoping to become a homeowner, your credit score may hold the keys to realizing that dream. Knowing the minimum credit score needed for a home loan gives you a baseline to help decide if it’s time to apply for a mortgage, or take some steps to boost your credit first.

It’s possible to get a mortgage with a score as low as 500 if you can come up with a 10% down payment. Keep reading to learn the minimum credit score requirements for the most common loan programs.

What are the minimum credit scores for home loans?

Your credit score plays a big role in determining whether you qualify for a mortgage and what your interest rate offers will be. A higher credit score means you’ll likely get a lower rate and a lower monthly mortgage payment.

There are four main types of mortgages: conventional loans, and government-backed loans insured by the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA). Conventional loans, which are the most common loan type with guidelines set by Fannie Mae and Freddie Mac, have a credit score minimum of 620. Although some loan programs don’t specify a minimum credit score needed to qualify, the approved lenders who offer them may set their own minimum requirements.

The table below features the minimum credit scores for these home loans, along with minimum down payment amounts and for whom each of the loans is best.

Loan type

Minimum credit score

Minimum down payment

Who it’s best for

Conventional6203%Borrowers with good credit
FHA500-579 with 10% down payment
580 with 3.5% down payment
10% with a score of 500-579
3.5% with a minimum score of 580
Borrowers who have bad credit and are purchasing a home at or below their area FHA loan limits
VANo credit minimum, but 620 recommendedNo down payment requiredActive-duty service members, veterans and eligible spouses with VA entitlement
USDA640No down payment requiredBorrowers in USDA-eligible rural areas with low- to moderate-incomes

What is a good credit score to buy a house?

Meeting the minimum score requirement for a home loan will limit your mortgage options, while higher credit scores will open the doors to more attractive rates and loan terms. A good credit score can also provide you with more choices for home loan financing.

  • 740 credit score. You’ll typically get your best interest rates for a conventional mortgage with a 740 (or higher) credit score. If you make less than a 20% down payment, you’ll pay for private mortgage insurance (PMI). PMI protects the lender in case you default on your home loan.
  • 640 credit score. Rural homebuyers need to pay attention to this benchmark for USDA financing. Exceptions may be possible with proof that the new payment is lower than what you’re paying for rent now.
  • 620 credit score. The bare minimum credit score for conventional financing comes with the largest mark-ups for interest rates and PMI.
  • 580 credit score. This is the bottom line to be considered for an FHA loan with a 3.5% down payment.
  • 500 credit score. This is the lowest credit score you can have to qualify for an FHA loan, but you must put 10% down to qualify.

Annual percentage rates by credit score

Your mortgage rate is a reflection of the risk lenders take when they offer you a loan. Lenders provide lower rates to borrowers who are the most likely to repay a mortgage.

Here’s a glimpse of the annual percentage rates (APRs) and monthly payments lenders may offer to borrowers at different credit score tiers on a $300,000, 30-year fixed loan. APR measures the total cost of borrowing, including the loan’s interest rate and fees.

FICO Score

APR

Monthly Payment

760-8503.011%$1,267
700-7593.233%$1,303
680-6993.410%$1,332
660-6793.624%$1,368
640-6594.054%$1,442
620-6394.6%$1,538
*Based on national average rate data from myFICO.com for a $300,000, 30-year, fixed-rate loan as of May 4, 2020.

As the credit score ranges fall, the interest rates are higher. Borrowers with a score of 760 to 850, the highest range, saw an average monthly payment of $1,267. Borrowers in the lowest credit score tier of 620 to 639 saw their monthly payment jump to $1,538. The extra $271 in monthly payments adds up to an additional $97,560 in interest charges over the life of the loan.

Steps for improving your credit score

Now that you have an idea of the extra cost of getting a minimum credit score mortgage, follow some of these tips that may help boost your score.

  • Make payments on time. It may seem obvious, but recent late payments on credit accounts hit your scores the hardest. Set your bills on autopay if possible to avoid forgetting to pay one.
  • Pay off balances monthly. Try to pay your entire balance off each month to show you can manage debt responsibly.
  • Keep your credit card balances low. If you do carry a credit card balance, charge 30% or less of the available credit limit on each account.
  • Have a mix of different credit types. Mortgage lenders want to see you can handle longer-term debt as well as credit cards. A car loan or personal loan will help demonstrate your ability to budget for installment debt payments over time.
  • Avoid applying for new accounts. A credit inquiry tells your lender you applied for credit. Even if you were applying to get your best deal on a credit card or car loan, multiple inquiries could drop your scores, and give a lender the impression you’re racking up debt.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.