Paying off your mortgage can take a long time, usually decades. In the meantime, it can limit your monthly cash flow, take money away from other investments and leave you spending hundreds of thousands in interest in the long run. Fortunately, there are ways to speed up your timeline.
By making biweekly mortgage payments instead of monthly, you can essentially shave years off your mortgage. Want to see if this strategy is the right move for your finances? Here’s what you need to know.
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How Biweekly Mortgage Payments Work
Biweekly payments are mortgage payments that are made every two weeks. Instead of making one larger monthly payment like you traditionally would, take that payment, divide it in half, and pay that amount every other week.
The strategy results in a full additional payment each year (because there are 52 weeks in a year, biweekly payments give you 26 half payments – or 13 full monthly payments – per year). It doesn’t sound like a big deal, but depending on the loan amount, interest rate, and term, it has the power to shave years off your payoff time and save you thousands of dollars in the long run.
A quick note: You will need to talk to your loan servicer if you want to make biweekly payments. Not all service providers allow this and in some cases they may charge a fee to process the additional payments. You must also ensure that the administrator will apply your payment once it is received. Some servicers will hold the payment until your monthly due date and apply both together. This negates the benefits of biweekly payments.
Biweekly mortgage payments versus monthly mortgage payments
The main difference between biweekly and monthly mortgage payments is when you make your payments. For monthly payments, you use the monthly due date you set and pay the full amount by then.
With a biweekly payment plan, you make half payments every two weeks. Many people choose to align these payments with their paydays if they are paid biweekly. This makes it easier to pay and remember the payments. (You can also set up automatic payments if you feel comfortable with that.)
This payout strategy also makes a big difference in your repayment timeline and long-term interest costs. Here’s how monthly vs. biweekly payments impact a $300,000, 30-year loan with a 7% mortgage rate.
In the example above, making biweekly payments would mean paying off your loan seven years early and paying about $100,000 less in interest.
Pros and cons of biweekly mortgage payments
Paying off your loan faster is a major benefit of biweekly mortgage payments. This can free up money for other purposes, such as saving for your pension, investing or paying your child’s tuition fees. It can also help you build your equity faster and save you a lot in the long run. (In the example above, you will save approximately $117,000).
Last but not least, biweekly payments can often be easier on your household budget, especially if you get paid every other week.
The downside is that biweekly payments may incur additional processing fees from your lender or a third-party processor if the lender uses one. You’ll actually pay more annually because you’ll be making thirteen payments at the end of the year instead of twelve, which can be a big drain on your annual budget. It also requires more work (unless you set up automatic payments).
Other ways to pay off your mortgage faster
Biweekly payments aren’t the only option if you want to pay off your mortgage faster. You can also:
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Put occasional windfalls towards your loan: If you receive a tax refund, holiday bonus or birthday money, you can add this to the principal of your loan. This will reduce your payout time and long-term interest every time.
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Make larger payments: If you can afford to spend an extra $100 on each monthly payment, you can also pay off your mortgage faster. Just make sure that your servicer applies that extra payment to your mortgage principal, and that none of it goes toward interest.
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: By saving during the year and making one additional repayment, you can shorten the term of your loan.
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: By refinancing your home loan into a new loan with a shorter term or a lower interest rate (or both), you can lower your interest costs and shave years off your payoff time. But you want to make sure the savings offset the closing costs of the refinance.
There are others, so check with a financial advisor if you’re not sure which one is right for you.
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Biweekly Mortgage Payments: Frequently Asked Questions
How much do biweekly payments shorten a 30-year mortgage?
That depends in part on the interest rate, but for a 30-year mortgage loan with a 7% interest rate, making your mortgage payments biweekly can pay off your loan seven years faster than traditional monthly payments.
What are the disadvantages of biweekly mortgage payments?
The big downsides to a biweekly payment schedule are that you’ll actually have to pay more on your mortgage each year (which is great in the long run, but can be a pain in the short term) and there may be additional processing fees involved.
Both repayment strategies can help homeowners pay off loans faster and pay less interest over the life of the loan. The right choice depends on your budget and the terms of your loan. Make sure you run the numbers to determine which one works best for you.
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