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Most homeowners dream of paying off their mortgage early. One way to achieve this goal is to pay half your monthly mortgage every other week. Making biweekly mortgage payments can shave years off your loan and save you thousands of dollars in interest.
Before you follow this strategy, check with your lender to ensure it allows biweekly payments and will credit you appropriately for your payments.
How Do Biweekly Mortgage Payments Work?
The idea behind biweekly mortgage payments is simple: Instead of making one full monthly payment, you pay half your monthly mortgage amount every two weeks.
The magic of this biweekly payment strategy lies in the calendar. There are 52 weeks in a year, and if you pay twice monthly, you'd make 24 payments annually. Paying every two weeks, on the other hand, allows for 26 total payments. As a result, the biweekly method results in the equivalent of one extra monthly full payment each year.
When you make biweekly mortgage payments, you may save money on interest in two ways:
- By making more frequent payments to bring down your principal balance, there's less of a balance to calculate interest.
- By paying off your mortgage sooner, you could potentially wipe out several years of interest payments.
Can You Pay Your Mortgage Biweekly?
If you want to boost your home equity faster, your lender must agree to immediately credit half of each monthly payment towards the loan. Unfortunately, not all lenders accept biweekly mortgage payments. Before you begin making extra payments, contact your lender to ensure they accept biweekly payments and apply the additional funds to your principal. Also, verify if there are any fees for modifying your payment schedule.
Bear in mind, some lenders hold partial payments—without crediting them to your account—until they receive the rest of your mortgage payment. In this case, you won't save as much in interest since these payments are not instantly applied.
Watch Savings Add Up With Biweekly Payments
Making biweekly payments to your mortgage lender could enable you to pay off your mortgage sooner and save on interest in the process. Let's say you have a 30-year mortgage of $400,000 with a fixed interest rate of 5%. Your monthly payment is $2,147.29, but you decide to make biweekly payments of $1,073.64 every two weeks. By doing so, you could trim four years and nine months' worth of payments off your mortgage loan and save $69,448.03 in total interest on the loan—all without refinancing your mortgage.
"A biweekly payment plan is far more effective than merely sending one additional payment per year," says Michael Hausam, a realtor and mortgage broker in Newport Beach, California. "Your loan balance accrues interest every day and reducing that principal balance every 14 days (26 half payments per year) saves more in interest charges than one full additional payment every 12 months, even though the total amount in payments every year remains the same."
Lisa Orban, an author and an Illinois-based homeowner, has been a regular biweekly mortgage payment payer since she purchased her residence and has a good reason for the strategy.
"I pay biweekly for a number of reasons, but the primary one is almost immediately more money is put towards the principal rather than the interest," Orban says. "The payment on the first of the month goes more towards interest, but the payment on the 15th shifts and more money is put towards the mortgage loan principal."
Should You Pay Your Mortgage Every Two Weeks?
If you're aiming to pay off your mortgage sooner or trying to save on interest, making biweekly payments can be a solid option. For example, if you have a high interest rate, biweekly payments can lead to considerable savings over the life of the loan. When you reduce your loan balance more often, you also slow down how fast the interest charges grow.
Making biweekly payments can also make sense if you receive your paycheck every other week. Aligning your paycheck with your mortgage payments may make budgeting more manageable and ensure you always have the funds when your payment is due.
Since making extra mortgage payments will obviously cost you more, however, switching to a biweekly payment schedule may not benefit you if you don't have a steady income and can't comfortably manage the increased payments. Before pursuing this path, run the numbers to ensure you can cover all your financial obligations while paying more toward your mortgage.
You might not want to pursue a biweekly mortgage payment strategy if your mortgage carries a hefty prepayment penalty. Some lenders impose prepayment penalties so substantial that they could negate the interest savings from early repayment. Refer to your mortgage contract or contact your lender to determine if your lender charges a fee if you pay off your mortgage early.
Alternatives to Biweekly Mortgage Payments
Fortunately, if your lender doesn't allow biweekly payments, you can still pay off your mortgage early and save money.
Make an Extra Payment Every Year
Remember, a biweekly mortgage payment schedule equals one extra payment each year. Another way to make an extra annual mortgage payment each year is to add one-twelfth of your usual mortgage payment on top of your monthly bill. Alternatively, you can direct tax refunds, bonuses and other additional money you receive toward your principal balance.
Refinance Your Mortgage
Refinancing your mortgage could give you a shorter repayment term and lower interest rate. Decreasing a 30-year repayment term to 15 or 20 years could save you significantly on interest—although it will greatly increase your monthly payment. 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. Thankfully, you can eliminate your PMI on a conventional loan by accruing 20% equity in your property, typically by making regular payments over time or having a home appraisal that demonstrates a higher property value. Once you no longer have to pay PMI, you can funnel those funds towards the principal balance on your mortgage each month to pay off your home loan sooner.
Contact your lender to discuss removing your PMI payments. Unfortunately, mortgage insurance can't be automatically eliminated from an FHA loan. In this case, you'll have to refinance to get rid of it.
Create More Room in Your Budget
Look for ways to create extra money in your budget you can direct toward your principal mortgage balance. Carefully review your non-essential purchases, such as unwanted gym memberships and streaming services, to determine which ones you can cut from your budget.
On the other side of the ledger, consider ways you can increase your income. For example, you might volunteer for overtime at work or ask for a raise if your salary falls short of the industry standard for someone with your qualifications and experience.
Improve Your Credit for Greater Financial Strength
If your lender allows it, paying your mortgage biweekly can help you pay off your mortgage early and save substantial interest. Paying off your home early can help strengthen your financial stability, especially if you can do so before retirement when income often diminishes.
It's also essential to strengthen your credit, another foundational pillar of your financial house. Start by regularly reviewing your credit report and credit score for free with Experian. Maintaining a high credit score can help you qualify for a refinance or other credit options with favorable rates to save you money.