Understanding Biweekly Mortgage Payments

Most homeowners dream of paying off their mortgage early. One effective strategy to achieve this goal is to make biweekly mortgage payments. This method can significantly reduce the term of your loan and save you thousands of dollars in interest.

Before you start, it’s crucial to check with your lender to ensure they allow biweekly payments and will credit you appropriately for your payments.

How Do Biweekly Mortgage Payments Work?

The concept behind biweekly mortgage payments is straightforward: instead of making one full monthly payment, you pay half of your monthly mortgage amount every two weeks.

There are 52 weeks in a year, and if you pay every two weeks, you end up making 26 half-payments, which is equivalent to 13 full monthly payments. This extra payment each year can significantly reduce your loan balance and the interest you pay over the life of the loan.

Can You Pay Your Mortgage Biweekly?

To take advantage of biweekly payments, your lender must agree to credit half of each monthly payment towards the loan immediately. Unfortunately, not all lenders accept biweekly payments. Before you start, contact your lender to confirm they accept biweekly payments and apply the additional funds to your principal. Also, check if there are any fees for modifying your payment schedule.

Watch Savings Add Up With Biweekly Payments

Making biweekly payments can help you pay off your mortgage sooner and save on interest. For example, if you have a 30-year mortgage of $400,000 with a fixed interest rate of 5%, your monthly payment is $2,147.29. By making biweekly payments of $1,073.64 every two weeks, you could trim nearly five years off your mortgage and save $69,448.03 in total interest.

Should You Pay Your Mortgage Every Two Weeks?

If you’re aiming to pay off your mortgage sooner or save on interest, biweekly payments can be a solid option. This strategy can be particularly beneficial if you have a high interest rate. Aligning your mortgage payments with your biweekly paycheck can also make budgeting easier.

However, if you don’t have a steady income, switching to a biweekly payment schedule may not be beneficial. Additionally, some mortgages carry hefty prepayment penalties that could negate the interest savings from early repayment. Always check your mortgage contract or contact your lender to determine if there are any prepayment penalties.

Alternatives to Biweekly Mortgage Payments

Make an Extra Payment Every Year

If your lender doesn’t allow biweekly payments, you can still pay off your mortgage early by making an extra payment each year. You can add one-twelfth of your usual mortgage payment on top of your monthly bill or direct tax refunds, bonuses, and other additional money towards your principal balance.

Refinance Your Mortgage

Refinancing your mortgage could give you a shorter repayment term and lower interest rate. However, watch out for closing costs and origination fees, which could offset your interest savings if you move out before reaching the break-even point.

Eliminate PMI

Private mortgage insurance (PMI) can add several hundreds of dollars to your monthly mortgage payment. You can eliminate PMI by accruing 20% equity in your property. Once you no longer have to pay PMI, you can funnel those funds towards the principal balance on your mortgage each month.

Create More Room in Your Budget

Look for ways to create extra money in your budget to direct towards your principal mortgage balance. Review your non-essential purchases and consider ways to increase your income, such as volunteering for overtime or asking for a raise.

Improve Your Credit for Greater Financial Strength

Paying your mortgage biweekly can help you pay off your mortgage early and save substantial interest. Strengthening your credit is also essential. Regularly review your credit report and credit score to maintain a high credit score, which can help you qualify for a refinance or other credit options with favorable rates.