A mortgage is one of the biggest debts you’ll have in your lifetime. While you may be working toward tackling credit debt, a car loan, student loans or all the above, the balance of your mortgage may be a little harder to chip away at.
If you’re motivated, you can make an additional mortgage payment yearly. One way to do this is by making biweekly mortgage payments. This means you’ll make an extra payment each year that could potentially pay your mortgage off several years earlier.
However, take a moment to consider whether this plan is feasible for you. Many factors go into biweekly mortgage payments, so it’s important to know what they are and how they can impact your finances before making the switch.
Paying your mortgage twice a month instead of once can have significant benefits in terms of saving money on interest and paying off your loan faster. Known as biweekly mortgage payments this strategy involves making half your regular monthly payment every two weeks. While it requires some extra effort a biweekly payment schedule can shave years off your loan term and potentially save you thousands of dollars over the life of your mortgage.
What Are Biweekly Mortgage Payments?
With a traditional monthly mortgage you make one payment per month on a set due date. Biweekly payments split that monthly amount in half and have you pay it every two weeks.
Over the course of a year there are 26 biweekly periods. By paying half your mortgage every two weeks you end up making 13 equivalent monthly payments instead of 12. This extra payment goes straight to reducing your principal balance.
The key advantage of biweekly payments is the frequency. Making 26 half-payments annually gives you an extra month’s worth of payments to chip away at the amount you owe. This increased regularity can significantly shorten the payoff time and lifetime interest costs of your loan.
How Do Biweekly Payments Help You Save?
Biweekly mortgage payments help in two primary ways:
1. Paying Down the Principal Faster
When you make biweekly payments, you’re making an extra month’s payment each year directly toward your principal balance. This reduces your overall loan amount quicker.
The larger your principal, the more interest you pay each month. So as your principal goes down, you pay less in interest with every new payment.
2. Accumulating Less Interest Overall
Not only are you paying extra toward the principal with each biweekly installment, but you’re also giving interest less time to accrue between payments.
With monthly payments, interest builds up for a full 30 days before the next payment. Biweekly payments split this timeframe in half, limiting interest growth.
Together, these effects compound to save you a significant amount over the loan’s duration. Every extra principal payment today reduces total interest costs down the road.
Pros of Biweekly Payments
Switching to biweekly mortgage payments offers several advantages:
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Saves money on interest: Making an extra month’s payment yearly trims interest costs substantially over time. This adds up to thousands in savings.
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Pays off mortgage faster: The extra principal payments shorten your loan’s payoff timeline by years in many cases.
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Builds equity quicker: Faster repayment grows your equity stake in the home sooner. This gives you more borrowing power or sales proceeds when you eventually sell.
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Better aligned with pay periods: Biweekly installments line up with getting paid every two weeks from an employer for many borrowers.
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Easy to budget: Half payments are easier to afford than full monthly amounts.
Cons of Biweekly Payments
While beneficial overall, some potential downsides of biweekly payments include:
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Prepayment penalties: Your loan documents may prohibit extra payments or charge fees for paying down principal early.
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Difficult setup: Not all lenders and servicers accommodate custom payment schedules easily or for free.
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Escrow issues: Making biweekly half-payments could throw off your escrow balance for taxes and insurance.
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Loss of investment returns: Extra money toward the mortgage may provide less return than investing or paying down higher-interest debts.
How to Make Biweekly Payments
If you want to switch to biweekly payments, contact your mortgage servicer to discuss setup. There are a few options:
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Enroll in the lender’s biweekly payment program if offered.
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Make manual half-payments every two weeks on your own.
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Sign up through a third-party biweekly payment service, usually for a fee.
To avoid headaches, verify with your servicer that extra payments go toward the principal and don’t incur fees. Also confirm your escrow account won’t be disrupted.
You’ll need to budget for the new biweekly amount and likely adjust automated payments. But once established, the schedule becomes routine.
Who Benefits Most from Biweekly Payments?
Certain borrowers stand to gain more from biweekly mortgage payments:
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New purchases: Paying biweekly right after origination provides maximum interest savings.
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Long-term loans: 30-year mortgages accumulate the most interest, so biweekly payments make a bigger dent.
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High-balance loans: Large loan amounts have higher interest costs, presenting more savings opportunity.
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High rates: Loans with interest rates above 5% benefit most from biweekly principal paydown.
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Long-term owners: Keeping the home and mortgage for longer realizes the full payoff benefits.
Biweekly vs. Monthly Payments
| | Biweekly Payments | Monthly Payments |
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Pros and cons of biweekly mortgage payments
Paying your mortgage biweekly has its benefits, but it also comes with a few disadvantages. Consider these pros and cons before deciding which payment option is right for you.
- Pay off your mortgage faster: A biweekly repayment schedule can help you pay off a mortgage early by several years.
- Pay less in interest over time: Biweekly payments can contribute one extra full payment on your principal balance per year and cut down on accumulating interest.
- Build equity faster and cancel PMI: Biweekly payments build up your home equity. If you have a conventional loan, you can request to drop your private mortgage insurance (PMI) payments once you have 20% equity in the home. This will save you more money each month.
- Simplifies your budget: This payment plan could make personal budgeting easier, especially if you’re paid biweekly for your job.
- Less funds for housing expenses: The extra payment toward your mortgage per year can be tough if you’re on a tight budget. If you’re living paycheck to paycheck, that extra payment might be better spent elsewhere.
- Additional processing fees: Your mortgage lender may charge a setup fee, as well as transactional fees. If your lender doesn’t offer biweekly mortgage payments, third-party payment processors may also charge extra fees (more on this below).
- Lender prepayment penalties: Some mortgage lenders have a prepayment penalty, meaning you could get charged for paying your mortgage off early.
- Failure to reap the full benefits of biweekly payments: Some lenders or processors still only apply your payments once a month, even though you’re paying twice or more a month. As a result, you won’t save as much in interest, because the payments won’t be immediately processed.
- Delay in payment application: Even if you make additional payments, some lenders or loan processors may apply the payments once a month, thus interest still applies. Speak to a representative to better understand how payments are applied before you start making biweekly payments.
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FAQ
Does paying a mortgage twice a month save money?
How much faster do you pay off a mortgage with bimonthly payments?
Standard loan terms are 15 or 30 years. Making bi-weekly payments rather than monthly payments allows you to pay one extra monthly payment ($954) toward the principal each year. Bi-weekly payments will save you 19,834 in interest, and will reduce the term of your loan from 30 years to 26.1 years.
How do I pay off a 30 year mortgage in 15 years?
- Pay Extra Each Month. …
- Pay Bi-Weekly. …
- Make an Extra Mortgage Payment Every Year. …
- Refinance with a Shorter-Term Mortgage. …
- Recast Your Mortgage. …
- Loan Modification. …
- Pay Off Other Debts. …
- Downsize Your Home.
Is it smart to make double payments on a mortgage?
Doubling your principal payment every month will speed up your time to pay off your loan. Paying extra so at least you are paying more principal than interest is recommended to get over the hurdle on feeling like you are making progress on your mortgage.