When you buy a house, you typically make monthly payments for an agreed-upon number of years to pay off the loan. Most commonly, this is based on a 30-year mortgage agreement. But what if you could pay your home off faster and pay less money using biweekly mortgage payments? With this payment schedule, you end up paying down more of your loan each year and saving yourself potentially tens of thousands of dollars in interest. Let's get into it!
What is a biweekly mortgage payment?
When you borrow money for a home loan, your lender sets up a monthly payment plan. Each month you make one payment — some of it goes toward interest, and some goes toward principal. But instead of sticking with the normal monthly payment schedule, you can make biweekly mortgage payments. In other words, you make half of your mortgage payment every two weeks.
How do biweekly mortgage payments work?
When you make biweekly mortgage payments, you ultimately end up making 26 half payments — or 13 full payments — throughout the year. Let’s say you have a monthly mortgage payment of $1,000, meaning you pay $12,000 per year. With biweekly payments, you’d make 26 payments of $500. You end up paying $13,000 per year.
Biweekly mortgage payments can save you money on interest over your loan term and result in you paying off your mortgage years earlier. You save money in a couple of ways:
- Because you’re making an extra payment per year, you pay off the loan faster. The faster you pay off the loan, the less you pay in interest.
- Interest accrues monthly on mortgages. If you make payments biweekly, then your balance is lightly lower when interest is calculated. This saves you just a small amount each month, but a lot more over the loan’s full term.
Pros and cons of biweekly mortgage payments
You pay off your mortgage faster
When you make biweekly mortgage payments, you ultimately end up making one full extra payment per year. That can ultimately shave years off the time it takes you to pay off your home.
You build equity sooner
One of the biggest perks of homeownership is building equity in your own home. But, especially in the early years, it builds slowly. When you make biweekly mortgage payments, you can apply your extra payments directly to the principal and build equity more quickly.
You save money on interest
The faster you pay down your mortgage, the less interest you pay. And you can ask your lender to direct your extra payments directly to the principal so that you save on interest even more.
It may be easier to budget
If you get paid every two weeks, then a biweekly mortgage payment might be the perfect arrangement for you. You can schedule your mortgage payments to correspond to your paychecks so that in the month when you pay a third mortgage payment, you also get a third paycheck.
You have less money available in your budget
When you pay your mortgage biweekly, there will be two months per year where you make three biweekly payments instead of two. Make sure your budget can accommodate this before you commit.
There could be setup fees
Some mortgage lenders don’t have a system in place for automatic biweekly payments. As a result, many people work with a third-party payment company to arrange this payment schedule, often for a large setup fee.
It may not be applied as you intended
In some cases, your mortgage service may not apply your biweekly payments as you intend. Some companies hold the half payment until they receive the full amount and then apply the monthly payment as normal. Make sure to talk to your loan servicer to make sure they will apply your payments immediately.
You could face prepayment penalties
A prepayment penalty is a fee that some mortgage lenders charge when borrowers pay off their home loans early. And when you make biweekly mortgage payments, you end up paying off your loan a bit faster. If your mortgage lender charges a prepayment penalty, it should be in your mortgage contract, so look out for it. Most lenders don’t charge these fees anymore.
Biweekly mortgage payment calculation
Let’s say you have a 30-year conventional mortgage with a principal loan balance of $250,000 (just under the national average home price) and an interest rate of 4%. With a standard monthly payment schedule, you’d have a monthly payment of $1,193.54. And over the life of the loan, you’d pay $179,673.77 in interest. But what if you make biweekly payments instead?
Rather than making one payment per month, you’d make one payment every week of $596.77. You’d end up paying $150,450.40 in interest — that’s nearly $30,000 less than if you made monthly mortgage payments. Plus, you’d pay off your mortgage in year 25 instead of taking the full 39 years.
You can figure out just how much money you’d save with biweekly mortgage payments using a biweekly mortgage payment calculator.
How to set up a biweekly mortgage payment
Are you interested in setting up biweekly mortgage payments so start paying down your mortgage faster? Here’s how to get started:
Contact your mortgage lender
Some lenders have a system in place to accept biweekly mortgage payments automatically. That’s by far the easiest way to do it, so your lender should be your first call. Just make sure they’ll apply the payment right away rather than holding it until they receive your second payment.
Consider a third-party service
If your mortgage lender doesn’t have a system for biweekly mortgage payments, shop around for a third-party service. Be picky if you choose to go this route since some charge significant setup fees.
Make biweekly payments manually
If your lender can’t automatically accept biweekly mortgage payments, simply manually make a payment every other week. Alternatives would be to:
- Save up the money and make one extra mortgage payment per year, OR
- Divide your mortgage payment by 12 and add that amount to each payment — it’ll have the same result of a full extra mortgage payment per year.
The bottom line
Biweekly mortgage payments are an excellent way to pay off your mortgage faster and save you money throughout your loan. And in most months, you aren’t paying any more than you usually would. If you’d like to get started, reach out to your lender to see if they can help.