Should you make biweekly mortgage payments?

Most homeowners make their mortgage payments once a month. However, unless you have a prepayment penalty — and that’s unlikely — you can chip away at your outstanding balance on a more frequent basis. With a biweekly mortgage payment plan, you can make half your normal monthly payment every two weeks and pay down your mortgage faster.

How do biweekly mortgage payments work?

With biweekly mortgage payments, instead of making a full payment once per month, you’ll make half your monthly payment every other week. This translates to 26 half-payments, or 13 full payments, per year.

That extra 13th payment speeds up the rate at which you pay off the loan. This reduces the amount of interest you’ll pay overall.

Monthly vs. biweekly mortgage payments

Let’s say you buy a $350,000 home with 10 percent down, financed with a 30-year, fixed-rate mortgage at 7 percent. Your first mortgage payment would look like this:

To make this a biweekly payment, you’d simply cut the $2,095 monthly payment in half and pay that — $1,047.50 — every two weeks.

At that rate, by the end of the year, you’d have paid $27,235 — $2,095 more than what you would have paid if you had made payments once a month. That extra payment, though, goes entirely toward your principal, adding up to savings and a much faster payoff:

Pros and cons of biweekly mortgage payments

Pros of paying your mortgage biweekly

• Long-term savings: The biggest upside to biweekly mortgage payments is the ability to save big on interest. In the above example, you’d save more than $31,000 in interest in the first 10 years.
• Faster path to equity: Whether you’re planning to stay in the home forever or sell it before your loan term is up, you’ll accumulate more equity with biweekly payments. You’ll either pay off the loan and live mortgage-debt free, or be able to take more of the profit from a sale. If you’re still in the house, that equity also gives you a lower-cost borrowing option in the form of a home equity loan or line of credit.
• Extra financial discipline: Contributing more money to your debt payments could help you establish or firm up smarter spending habits in other areas.

Cons of paying your mortgage biweekly

• Potential impact on other savings goals: Before you commit to making biweekly mortgage payments, consider whether doing so would benefit your overall financial plan. A biweekly strategy means putting more money toward your mortgage every year, which could pull from other financial obligations like saving for retirement. Additionally, if you’re trying to pay off high-interest debt, the higher APR attached to your credit card, for example, should be a bigger priority than the lower APR attached to your mortgage. As you assess your budget, see if the savings outweigh any losses elsewhere.
• Possible prepayment penalty: Although not common, some mortgages come with a prepayment penalty if a borrower pays off the loan sooner than the repayment schedule dictates. Carefully read your loan documents or contact your servicer to see if you’d be subject to this fee. (Keep a record of who you spoke to in case there’s an issue later on.)
• Might require some extra setup: Lenders want to earn their share of interest, so arranging biweekly payments might not be that simple. Before making the extra payments, contact your servicer to coordinate your payment plan and verify that your additional amount will go toward the principal. Again, keep track of who you spoke with and get confirmation of your conversation in writing.

How to set up a biweekly mortgage payment plan

Get in touch with the company that services your loan (this might or might not be your lender — here’s how to check). If your lender allows biweekly payments and applies the extra payments directly to your principal, you can simply send half your mortgage payment every two weeks. If your monthly payment is $2,000, for instance, you can send $1,000 biweekly.

You can also divide your monthly payment by 12 and park that amount in a savings account each month, then send the accumulated amount to your lender as an extra payment that goes solely toward the principal at the end of the year.

To ensure your biweekly mortgage payment plan works the way you intend it to, confirm that:

• Your lender or servicer allows biweekly mortgage payments.
• Your extra payments are applied to the loan principal.
• You won’t be charged a prepayment penalty or fees for setting up or maintaining the payment plan.
• Your interest rate won’t change (unless you have an adjustable-rate loan).

Lastly, keep in mind your monthly payment includes property taxes and homeowners insurance premiums, so make sure to ask your lender if these payments would inflate your escrow cushion

What to consider before switching to a biweekly mortgage payment

• What does my savings account look like? Paying down debt faster feels good, but it shouldn’t come at the expense of your emergency fund. In short: If your savings need attention, don’t stretch yourself too thin to make biweekly payments.
• What other debts am I paying? If you’re paying off a car, student loans or credit cards, consider the interest rate attached to them. You might be better off getting any other debts down to zero before shifting your attention to your mortgage.
• What’s my interest rate? The higher your mortgage rate, the more you’ll be able to save with biweekly payments. If you managed to lock in a record-low mortgage rate — somewhere in the neighborhood of 3 percent — you’ve already done a good job of lowering your interest charges.
• Do I receive quarterly or yearly commissions? Remember: The biweekly payment schedule adds up to one additional monthly payment amount each year. If switching to more frequent payments complicates your life or your arrangement with your lender, you can also opt for sending one large additional sum to pay down the principal. If you work in sales and receive regular commission payouts, consider using those bigger paychecks for extra payments.
• Would I be better off investing the extra cash? Save money by eliminating debt, or earn money by finding good investment opportunities? That’s a big question that doesn’t necessarily have an easy answer. Those with a decent risk tolerance — and a long time horizon — might opt for putting money in the stock market in the hopes of generating a bigger return. On the other hand, eliminating debt frees up your budget and lowers the cost of any future debt you take on.

Bottom line

If done right, making biweekly mortgage payments leads to less interest paid over the life of your loan, saving you money and whittling your balance down sooner. However, you must confirm that the extra payments are being applied to the principal, and that you’re not subject to prepayment penalties.

Remember too that in some cases, paying off your mortgage at a faster pace means taking money away from other financial obligations. Before you commit to biweekly payments, take a thorough look at your budget and goals.