What Are Biweekly Mortgage Payments?

For most people, a mortgage is the largest debt they take on in their lives. If you dream about financial freedom and owning your home outright, consider making extra mortgage payments to pay off the debt sooner. Of course, you could make a single extra payment once a year, but a strategy many people use is to make biweekly mortgage payments. By paying half of your mortgage amount every two weeks instead of once a month, you'll make an extra mortgage payment each year without straining your budget. While it may seem like a small step, the payoff can be huge. Read on to understand how to use this strategy and why it works. 

How Biweekly Mortgage Payments Work

With a biweekly mortgage payment, you will pay part of your total principal plus interest payment due every two weeks instead of the full amount once a month. 

For example, suppose your mortgage payment is $1,600 a month. Instead of paying $1,600 at the end of each month, you could pay $800 every two weeks. By the end of a year (52 weeks), you would have made 26 payments of $800, or an additional full mortgage payment for the year (26/2=13 annual payments). This example applies to a fixed-rate mortgage, but the same applies to a variable-rate mortgage, except that your payment amounts will adjust with each interest rate adjustment. 

This strategy's significant savings come from interest savings. When you take out a mortgage, a portion of your payment goes to the principal (the amount you borrowed), and the rest goes toward interest. Lenders usually structure loans so that you pay more in interest in the early years without paying down much principal.

Over time (and with payments), more of your payments will apply to the amount you borrowed. This can be frustrating, as it means that for the first few years of the mortgage, much of your payments may be paying off interest rather than principal. 

Interest is calculated based on the principal balance, so if you can make additional payments to bring down the principal amount, the interest on the balance goes down as well. With biweekly payments, the goal is to pay down as much principal as possible. 

Biweekly vs. Monthly Mortgage Payments

With 52 weeks in a year, most months have more than exactly four weeks. By making biweekly payments instead of monthly payments, many people can pay more each year without straining their budgets. Of course, if times are tight and you're waiting for that next paycheck to come in, this might not work, but for most people, the biweekly payments are doable with a little planning.

With 12 months in a year and biweekly payments equaling 13 months, you can shave years off your mortgage and save significantly on interest.

For example, suppose you have a 30-year, $200,000 mortgage with an excellent 4% fixed annual percentage rate (APR). Your monthly mortgage payment would be $954. If, instead, you make biweekly payments, you'll pay $477 every two weeks. In that case, you'll pay off the mortgage a full 50 months (over four years) early and save $22,553 in interest payments. The savings are multiplied if you have a larger loan or a higher interest rate. 

Advantages and Disadvantages

Biweekly mortgage payments have advantages and disadvantages, mainly related to your financial situation and lender policies. Here are the pros and cons to weigh before making biweekly mortgage payments. 

Advantages

• Interest savings: Biweekly mortgage payments lead to significant interest savings.
• Building equity: By paying down the principal, you'll build equity in the property faster. If done consistently, you can pay off the mortgage sooner.
• Ease: For many families, it's easier to make biweekly payments than extra annual payments. 
• Cancel PMI faster: By building home equity faster, you'll reach 20% equity in the home faster. That means the lender will automatically cancel private mortgage insurance (PMI), increasing monthly savings.  
• Budgeting: If you're paid biweekly, making biweekly mortgage payments can simplify your budget as you will pay the same amount from each paycheck. 

Disadvantages

• Delayed transfer to lender: Some mortgage companies hold the first payment until they receive the second payment before sending the two payments together to the lender. This means you don't get the extra two-week head start on paying down principal. However, it doesn't negate the advantage that it's a good rhythm for many people to make extra payments.
• Possible fees: Some mortgage companies or lenders may charge an extra fee for biweekly payments, and others may charge an early repayment fee. Check your lenders' fees before setting up biweekly payments. 
• Financial limitations: A biweekly mortgage payment usually means you'll need to commit to these payments. You cannot change payment plans from month to month. In that case, you'll need the financial resources, including stable income and/or savings so that you can make these payments. 

How to Set Up With Your Lender

Setting up a biweekly mortgage payment plan involves speaking to your lender. You'll usually need to call them or visit the local office. If you have a separate mortgage service from your lender, you'll need to speak to the mortgage service. However, in many cases, the lender and mortgage service are the same. If the lender and/or mortgage service allow biweekly payments, you can start sending half your mortgage payment every two weeks.

To ensure that setting this up is successful, talk to your lender to double-check early repayment fees, biweekly mortgage payment fees and any other limitations. 

Alternative Payment Plans

If biweekly mortgage payments don't work for you, there are alternatives you can consider. Here are a few of the best options:

Bimonthly Mortgage Payments 

Bimonthly mortgage payments may seem similar to biweekly mortgage payments, but you won't make an additional mortgage payment over the year. Instead, you'll pay half of the mortgage amount owed twice a month, usually on the 1st and 15th of each month. 

However, you can save a little on interest by making two payments a month, as long as the lender applies the payments to the mortgage bimonthly. 

Rate-and-Term Refinance

Consider a rate and term refinance if interest rates drop or your credit score has improved. With a rate and term refinance, sometimes called a no cash-out or traditional refinance, you can change the interest rate and loan term without changing the principal balance. 

This is an option to save on interest rates or choose a shorter repayment term. If money is tight, you might choose a longer repayment term with a lower interest rate to save more. 

Additional Principal-Only Mortgage Payment 

Principal-only mortgage payments are an alternative to biweekly payments. With these additional mortgage payments, you'll reduce your mortgage principal directly. You aren't limited to your monthly mortgage amount, and depending on lender policies, you can make principal-only mortgage payments anytime. For example, if you get a bonus at work or inherit some cash, you could use that for additional principal-only mortgage payments.

Should You Switch to Biweekly Mortgage Payments? 

Switching to biweekly mortgage payments can lead to significant savings in interest payments. You will build equity in the property faster. If you can make it work with your income, and your lender allows biweekly payments without fees, switching to biweekly mortgage payments is a great strategy to manage your mortgage and pay it off faster. 

You can consider a refinance if a biweekly mortgage payment won't work for you. Find the best refinance mortgage companies and check out current mortgage rates to determine whether now is the time to switch. 

Frequently Asked Questions