Most homeowners make their mortgage payments once a month. With a biweekly mortgage payment plan, you can make half your normal monthly payment every two weeks, helping to pay down your mortgage faster.
How do biweekly mortgage payments work?
Let’s say your mortgage payment is $1,000. If you paid that once a month, you’d pay $12,000 over the course of a year.
With a biweekly mortgage payment plan, you’d make half your mortgage payment, or $500, every two weeks, for a total of 26 payments. At that rate, by the end of the year, you’d have paid $13,000 — $1,000 more than what you would have paid if you had made payments once a month. By taking this route, you’d essentially make an extra payment for the year.
You can find out how much biweekly payments can save you with Bankrate’s biweekly mortgage payment calculator.
Why should you make biweekly mortgage payments?
By making biweekly payments, or one extra payment per year, you’re paying down your mortgage sooner and saving on interest.
“Anytime you can pay a little extra to lower your principal, you’ll owe less interest going forward,” explains Glenn Brunker, a mortgage executive with Ally Home. “Plus, as you pay down the principal balance, less of your payment will go to interest, and more will go toward the principal — lowering it even more.”
The caveat is that you’ll need to ensure that extra payment is actually being applied to the loan principal and not the interest.
Let’s say you have a 30-year, fixed-rate mortgage for $250,000 with a 3.2 percent interest rate. Your monthly payment (excluding insurance and taxes) would come to $1,081. Assuming you pay once a month, you’d pay roughly $139,260 in interest over 30 years.
In the same scenario making biweekly payments — or about $540 every two weeks — you’d cut your total interest down to $119,369, saving you more than $19,800. You’d also pay off the loan in 26 years, instead of 30.
Another reason to make that extra payment is to build equity faster. You can borrow against your home’s equity for a variety of purposes and in different ways, such as with a cash-out refinance, home equity loan or home equity line of credit (HELOC).
Aside from saving you money and attaining more equity sooner, it can make sense to make biweekly payments if you earn biweekly paychecks, Brunker says, noting that “an adjusted payment schedule may better align with [your] monthly cash flow.”
Drawbacks of biweekly mortgage payments
Biweekly mortgage payments can save you money, but they’re not all upside. In addition to checking whether your lender allows them, consider these disadvantages:
1. Less money for other needs
Before you commit to making biweekly mortgage payments, consider whether doing so would benefit your overall financial plan. A biweekly plan means putting more money toward your mortgage every year, which could pull from other financial obligations like saving for retirement or paying off high-interest debt. Be sure to work a biweekly payment plan into your budget and see if the savings outweigh any losses elsewhere.
“Paying the extra amount means a portion of your monthly money is tied up elsewhere, and without proper planning, this might affect your budget and your ability to pay for other pressing financial needs besides your mortgage,” explains Connie Heintz, founder and president of DIYoffer, a for-sale-by-owner toolkit.
“If you have already locked in a low interest rate, accelerating your mortgage might not make much of a difference,” Heintz adds. “You’ll just put in more of your money toward paying the mortgage.”
2. Possible prepayment penalty
Although not common, some mortgages come with a prepayment penalty that lenders charge if a borrower pays off the loan sooner than the repayment schedule dictates. Lenders can impose prepayment penalties in several different ways, such as charging 2 percent to 4 percent of the balance or a flat fee, like $3,000. Carefully read your loan documents or contact your lender to see if you’d be subject to prepayment penalties.
3. Third-party payment plans
If your lender doesn’t offer a biweekly payment plan, you might find a third-party company that can do it for you. Beware — these companies can charge a hefty fee for setting up the plan, along with additional monthly payments, both of which can chip away at your savings. They might even charge you for their services and end up sending payments on a monthly basis anyway, which would cost you even more.
How to set up a biweekly mortgage payment plan
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.
In general, you won’t need to involve your lender in order to start making payments this way, according to David Reischer, attorney and CEO of LegalAdvice.com.
“It is simply unnecessary to involve the lender in changing the loan terms so that a borrower must make a payment every two weeks instead of the normal payment due once a month,” explains Reischer. “If a borrower wants to make an extra payment to accrue the benefit of a biweekly mortgage plan, then they can simply send a payment every two weeks instead of the payment due every 30 days.”
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 at the end of the year.
No matter how you do it, Heintz says you should “be sure to make it absolutely clear that this entire amount goes toward your principal balance. Otherwise, your lender might return the extra amount or forward it to your next payment, which negates the goal of biweekly payments.”
To confirm your biweekly mortgage payment plan works the way you intend it to, make sure that:
- Your lender allows a biweekly mortgage payment plan.
- Extra payments are applied to the principal.
- There are no prepayment penalties.
- No fees are charged for setting up or maintaining a biweekly payment plan.
- Your interest rate remains fixed for the life of the loan.
In addition, make sure your lender confirms any extra payments are being applied to the principal in a timely manner.
“If I entered a biweekly payment plan, then I would insist that the payment posts when it is received,” Reischer says. “If it’s not posting by the 15th of the month, assuming it is sent and received by then, I would make a formal complaint.”
Lastly, keep in mind your monthly payment includes property taxes and homeowners insurance, so make sure to ask your lender if these payments would inflate your escrow cushion.
If done right, making biweekly mortgage payments leads to less interest paid over the life of your loan, saving you money and paying your balance down sooner. However, you must confirm that the extra payments are being applied to the principal, and make sure you’re not subject to prepayment penalties. Also, watch out for any fees or third-party offers.
Remember too that in some cases, paying off your mortgage at a faster pace means you’re taking money away from other financial obligations. Before you commit to biweekly payments, take a thorough look at your budget and goals.