How to Pay Your Mortgage Early With Biweekly Payments
Many homeowners share the aspiration of paying off their mortgage early, and one effective method to achieve this is making biweekly payments. By splitting your monthly mortgage payment in half and paying that amount every two weeks, you can reduce the total interest paid over the life of the loan and pay it off years ahead of schedule.
Before adopting this strategy, it’s essential to confirm with your lender that biweekly payments are allowed and will be applied properly to your mortgage account.
How Do Biweekly Mortgage Payments Work?
The concept behind biweekly mortgage payments is straightforward. Instead of submitting one full payment each month, you send half of the monthly amount every two weeks.
The real advantage comes from how the calendar works. A year has 52 weeks, which translates to 26 biweekly periods. This results in 26 half-payments, or the equivalent of 13 full payments each year—one extra compared to the 12 payments made under a traditional monthly schedule.
This additional annual payment significantly impacts your mortgage in two ways:
- Reduced Principal: Paying more frequently reduces your outstanding loan balance faster, which lowers the interest charged on your remaining balance.
- Shortened Loan Term: By making an extra payment each year, you can pay off your mortgage sooner and eliminate several years of interest payments.
Checking If Biweekly Payments Are an Option
Before committing to biweekly payments, it’s crucial to verify your lender’s policies. Not all lenders permit this payment structure, and those that do may have specific rules about how payments are applied.
Some lenders delay applying partial payments to your loan until a full monthly payment has been collected. If your lender follows this practice, the benefits of biweekly payments—such as reduced interest—may be diminished. Additionally, some lenders may charge fees to adjust your payment schedule. Be sure to clarify these details before proceeding.
Visualizing the Savings with Biweekly Payments
Switching to biweekly payments can result in substantial savings over the life of a mortgage. For example, consider a 30-year mortgage for $400,000 with a fixed interest rate of 5%. The monthly payment would be $2,147.29. If you choose to make biweekly payments of $1,073.64, you could pay off your mortgage four years and nine months earlier. This strategy could also save you $69,448.03 in interest—without the need to refinance.
If your mortgage interest rate is higher, you save even more money and will trim more time off of your loan. Some homeowners may be able to pay their mortgage off as much as 7 years earlier!
By reducing your loan balance more frequently, biweekly payments ensure less interest accrues over time. While sending an additional annual payment as a lump sum is also beneficial, splitting payments into biweekly installments tends to yield better results because your loan balance accrues interest daily. Reducing the balance every two weeks is more efficient than making one extra payment at the end of the year.
Should You Pay Your Mortgage Biweekly?
If your goal is to pay off your mortgage faster or reduce the overall interest paid, biweekly payments might be a smart choice. This strategy is particularly beneficial for loans with high interest rates, as it reduces the balance more frequently, slowing the accumulation of interest.
Biweekly payments can also align well with a biweekly paycheck schedule, making budgeting simpler and ensuring timely payments. However, this approach requires careful consideration of your financial situation. If your income is inconsistent or you’re already stretched thin, the additional expense of biweekly payments might cause financial strain. Run the numbers to ensure you can meet your other financial commitments comfortably while making the extra payments.
Factors to Consider
- Steady Income Is Key
If your income fluctuates or is not guaranteed, the extra financial commitment of biweekly payments might not be practical. - Prepayment Penalties
Some lenders charge penalties for early repayment, which can offset the savings from making extra payments. Check your mortgage agreement or contact your lender to see if such penalties apply.
Alternatives to Biweekly Mortgage Payments
If your lender doesn’t allow biweekly payments or if this strategy isn’t feasible for you, there are still effective ways to save on interest and pay off your mortgage early.
1. Make an Extra Payment Annually
Since biweekly payments result in one extra annual payment, you can achieve similar savings by adding one full payment each year. For example:
- Add one-twelfth of your regular payment to each monthly payment.
- Use bonuses, tax refunds, or other windfalls to make an additional payment directly to your principal.
2. Refinance Your Loan
Refinancing to a shorter term, such as 15 or 20 years, can save you a significant amount in interest. However, be prepared for higher monthly payments and consider the costs of refinancing, such as closing fees. If you plan to move before the savings offset these costs, refinancing may not be worthwhile.
3. Eliminate Private Mortgage Insurance (PMI)
PMI can add hundreds to your monthly payment, but you can stop paying it once you have at least 20% equity in your home. To eliminate PMI:
- Pay down your principal balance to reach 20% equity.
- Request a home appraisal to prove your property value has increased.
FHA loans typically require mortgage insurance for the life of the loan, so you may need to refinance into a conventional loan to remove it. Once PMI is gone, apply the savings toward your principal balance to pay off your loan faster.
4. Optimize Your Budget
Free up money by trimming unnecessary expenses such as unused subscriptions or memberships. Channel these savings into your mortgage payments.
5. Boost Your Income
Look for ways to increase earnings, such as taking on overtime, side gigs, or negotiating a raise. Use the extra income to chip away at your principal balance.
Strengthen Your Financial Position
Biweekly mortgage payments—or alternative strategies—can lead to faster homeownership and substantial interest savings. Paying off your mortgage early not only reduces long-term costs but also enhances your financial security, especially as you approach retirement. By carefully assessing your income, lender policies, and financial goals, you can determine the most effective way to manage your mortgage and save money.
