Your mortgage payment is likely your largest monthly expense. But what if you could split up the payment and pay off your mortgage sooner? Biweekly mortgage payments allow you to pay 50% of your monthly mortgage payments every 2 weeks – and potentially save a lot of money in the long run.
Biweekly payments can align with your payday, reduce interest expenses and help you pay off your mortgage years ahead of your repayment schedule. Here’s how to determine if biweekly mortgage payments are right for you and how to transition from a monthly payment schedule to a biweekly system.
Key Takeaways:
- With a biweekly mortgage payment schedule, you pay half of your monthly mortgage payment every two weeks, resulting in 26 half-payments or 13 full monthly payments per year, rather than the standard 12 monthly payments.
- Paying your mortgage every two weeks instead of once a month can save you thousands in interest and allow you to pay off your home loan years ahead of schedule.
- Before switching to paying your mortgage biweekly, verify that your mortgage service provider doesn’t charge a prepayment penalty or other extra fees.
What Are Biweekly Mortgage Payments?
A biweekly mortgage payment schedule lets you restructure how you repay your home loan. Instead of making your full mortgage payment once a month, you’ll pay half of your standard payment once every two weeks.
When you make biweekly mortgage payments, you’ll actually make 13 full payments throughout the year instead of the standard 12. That means you’ll make an extra payment every year. This practice can help you manage your finances more effectively and save you money.
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Monthly Mortgage Payments Vs. Biweekly Mortgage Payments
Conventional monthly mortgage payments require one payment per month. On an annual basis, this approach is less expensive than biweekly payments because you make one fewer payment throughout the year. As the years go by, however, you’ll pay more in interest using a standard monthly mortgage payment schedule because you’ll have your loan for longer. You’ll pay your loan off faster, and save money, with biweekly payments.
Here’s an example that helps illustrate the benefit of making biweekly mortgage payments. Let’s say you have a $260,000 30-year fixed-rate mortgage with an interest rate of 6.25%. Here are the mortgage expense calculations for monthly and biweekly payments.
| Monthly Payment Schedule | Biweekly Payment Schedule | |
|---|---|---|
| Payment Amount | $1,600.86 | $800.43 |
| Total Full Payments Each Year | 12 | 13 |
| Total Interest Paid | $316,314.68 | $246,038.77 |
| Months Saved | N/A | 69 |
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How Do Biweekly Mortgage Payments Work?
Are you considering paying your mortgage on a biweekly schedule? Let’s review how biweekly mortgage payments work. Paying off your mortgage loan the standard way, which is once per month, results in 12 payments per year.
But because there are 52 weeks in a year, a biweekly payment approach is advantageous. You’ll make 26 payments. Because each biweekly payment is half your full monthly mortgage payment, you’ll end up making 13 full mortgage payments a year instead of 12. The final two payments at the end of the year serve to pay down the loan’s principal balance.
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Pros And Cons Of Biweekly Mortgage Payments
Here’s a breakdown of the pros and cons of adopting a biweekly mortgage payment schedule.
Pros Of Biweekly Payments
- Pay off your mortgage quicker: Adding one full payment per year helps you pay off your home loan well before the date listed on your standard amortization schedule. In the example scenario above, making biweekly mortgage payments would allow you to pay off your mortgage more than 5.75 years ahead of schedule.
- Save money on interest: A biweekly payment schedule lets you target the loan principal with your final two payments of each year. That way, the interest accrues on a smaller balance every year than a typical monthly payment schedule allows. This approach can save you thousands of dollars on interest over the life of the loan. In the example above, you’d save over $70,000!
- Align your mortgage payments with your pay schedule: Biweekly payments can occur in the same rhythm as your paychecks if you get paid on a biweekly basis. As a result, you can time your mortgage payments to be paid the same day that your employer pays you, ensuring that your mortgage doesn’t disrupt your budget. Additionally, smaller half-payments may feel more manageable for those on a fixed income.
Cons Of Biweekly Payments
- You’ll have less money for other expenses: Biweekly payments raise your housing costs by one month’s payment each year. As a result, your monthly budget will be tighter and you’ll have less capacity for other expenses.
- You may face a prepayment penalty: Some lenders impose a prepayment penalty for paying off a mortgage early. If your mortgage includes this policy, getting ahead of your amortization schedule can result in thousands of dollars of additional costs when you pay off your mortgage. Check to see if your lender charges a prepayment penalty before switching to a biweekly mortgage payment schedule.
- There is a potential for an additional servicing fee: In addition to a prepayment penalty, some lenders charge an extra servicing fee to borrowers who wish to change the frequency of their payments. This expense usually helps the lender cover the additional interest they would have received from your original mortgage payment schedule. Verify whether such a fee exists before changing how you pay your mortgage.
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How To Set Up Biweekly Mortgage Payments With A Lender
You can set up biweekly mortgage payments with your lender just by calling them or signing in to your online account to reach out to the lender online. Some banks/lenders may allow you to schedule biweekly payments via automatic bill pay options.
Typically, you’ll select a day between the first and 14th of the month for your first payment, allowing you to align with your paycheck deposit date. Your second payment will occur 14 days after your first payment.
Before changing how you pay your mortgage, you’ll want to verify the following:
- That your lender or loan servicer allows biweekly payments
- Whether there is a prepayment penalty
- That the additional amount you pay throughout the year goes toward the principal balance of your mortgage loan
- That your mortgage has a fixed interest rate, since adjustable-rate mortgages may cause monthly payment fluctuations
How To Make Biweekly Mortgage Payments Yourself
If your loan servicer doesn’t provide a biweekly structure, you can implement one yourself.
You can set up a biweekly mortgage payment schedule in your budget and allocate money every 2 weeks to prepare for the end-of-year payment.
Remember to check with your lender about a prepayment penalty before making any changes.
Implementing your own biweekly payment plan is easy. Simply divide your monthly mortgage payment in half. You may consider moving half of each month’s mortgage payment into a savings account, ensuring this money is reserved for the next payment. Schedule payments every other week, for a total of 26 payments throughout the year. Budgeting is crucial for this payment method, as you must get in the habit of making smaller but more frequent mortgage payments.
Factors To Consider Before Switching To Biweekly Mortgage Payments
Now that you know how biweekly mortgage payments work, consider a few more factors before you decide whether to pay your mortgage this way:
Current Loan Terms
Evaluate your current loan terms to see if biweekly payments are realistic. If your lender imposes a prepayment penalty, a biweekly payment method may still make sense if the cost savings outweigh the fees. This method could save you tens of thousands of dollars in interest over the life of the loan even after you account for a prepayment penalty. However, it’s important to calculate these costs based on the details and terms of your loan. On the other hand, your lender may offer a biweekly payment program that you can switch to at no additional cost.
Existing Debts
Mortgages typically have lower interest rates than other types of debt. For example, it may be more advantageous to repay debts such as student loans, auto loans and personal loans first. Use a debt calculator to determine which debt incurs the most interest each year, and focus your efforts on paying that debt off first.
Savings And Emergency Funds
Making biweekly payments means allocating more money for your house payments every year.On the other hand, you could also put the amount of that extra month’s payment into a high-yield savings account, increasing liquidity and earning interest.
Alternatives To Biweekly Payments
If biweekly payments aren’t feasible for your finances or your lender doesn’t allow them, here are some other ways to save money on your mortgage:
Refinancing to a lower interest rate: A rate-and-term refinance involves exchanging your mortgage for one with a lower payment due to an interest rate reduction or term extension. Additionally, this allows you to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, stabilizing your monthly payments. But you’ll want to compare current rates first. You can use a refinance calculator to visualize how your monthly payments might change and to determine whether refinancing could save you money.
Getting rid of private mortgage insurance (PMI): If you have a conventional mortgage and your down payment was less than 20%, you’re paying private mortgage insurance (PMI). This insurance protects the lender, providing extra revenue to cover the risk of the borrower defaulting on the loan. You can request that PMI be removed from your mortgage bill once you reach 20% equity in your home. Once it’s removed, your monthly mortgage payment will be lower.
FAQ
Here are some answers to common questions related to paying a mortgage biweekly:
The Bottom Line: Biweekly Mortgage Payments Could Save You Thousands Of Dollars In Interest
Biweekly mortgage payments offer a strategic approach to managing your mortgage, resulting in both a substantial savings on interest and an earlier payoff date. However, it’s crucial to weigh the pros and cons and consider your own budget constraints, as well as any associated fees or penalties.
Ultimately, the effectiveness of switching to biweekly payments depends on your specific financial situation. Consulting with your lender and conducting a thorough financial evaluation will help you make the most informed choice for your mortgage strategy.
Ben Shapiro
Ben Shapiro is an award-winning financial analyst with nearly a decade of experience working in corporate finance in big banks, small-to-medium-size businesses, and mortgage finance. His expertise includes strategic application of macroeconomic analysis, financial data analysis, financial forecasting and strategic scenario planning. For the past four years, he has focused on the mortgage industry, applying economics to forecasting and strategic decision-making at Quicken Loans. Ben earned a bachelor’s degree in business with a minor in economics from California State University, Northridge, graduating cum laude and with honors. He also served as an officer in an allied military for five years, responsible for the welfare of 300 soldiers and eight direct reports before age 25.
