Bimonthly Mortgage

What Is a Bimonthly Mortgage?

A bimonthly mortgage payment is a mortgage plan in which half of the scheduled monthly payment is made twice a month. This plan is not to be confused with a biweekly plan, where half of the scheduled monthly payment is made every two weeks.

Sometimes spelled as “bi-monthly” mortgage payments, these plans are typically set up for the customer to pay on the 1st and the 15th of each month. Under some bimonthly plans, it is even possible to make extra payments on top of the bimonthly ones.

Bimonthly Mortgage vs. Biweekly Mortgage

The difference between a bimonthly plan and a biweekly plan is subtle. In a biweekly plan, payments are made every two weeks—not quite the same as two payments a month, because most months are slightly longer than four weeks.

Specifically, a biweekly plan results in two more payments being made annually than on a bimonthly plan. In other words, 24 payments are made annually on a bimonthly plan, while 26 payments are made annually on a biweekly plan.

That might sound like a small difference, but it can really add up over the course of a mortgage. Just as a bimonthly mortgage can build equity in your property more quickly than a monthly plan, a biweekly mortgage can build equity even more quickly than that. Therefore, these plans are great for people looking to pay off their mortgage as quickly as possible.

Pros and Cons of Bimonthly Mortgages

A bimonthly plan might shorten the overall term of the mortgage to a certain degree. Some bimonthly mortgages might come with a higher payment to further reduce the interest and principal balance compared with making regular monthly payments. It may be possible to convert to a bimonthly mortgage when refinancing under a new mortgage, which might be lower to accelerate the payment process.

A bimonthly mortgage plan will result in interest savings over the life 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 point the full monthly payment is made).

Under a bimonthly mortgage, breaking up the payments can cut down the interest that would have to be paid. However, the lender may or may not make such a payment option available. Furthermore, a lender might require additional fees to participate in a bimonthly mortgage plan, which could eliminate any potential savings that might have been gained.

With some bimonthly mortgages, the lender might still hold the first payment—another scenario that would eliminate any savings that might have been gained. While such a plan would give the borrower more flexibility in how they pay off a mortgage, it would not result in any fiscal benefit. The terms of any bimonthly mortgage should define when and how the payments will be applied toward the principal balance.

There is debate over how effective bimonthly mortgage plans can be, especially because most mortgage lenders calculate interest as a monthly cost, not a bimonthly cost. So, while it is possible to reduce overall interest due, the end result might only amount to the elimination of one payment or a few.