Pay Your Mortgage Off Faster? A Look at Biweekly Payments:

How Do Mortgage Payments Work?

When you take out a mortgage, you're borrowing money to buy or refinance a home, and you make regular payments, usually monthly, to repay this loan. The amount you borrow is called the loan principal.

Each payment you make is divided between the principal and the interest. The interest is the fee charged by the lender for loaning you the money. In the early years of your loan, most of your payments will go towards interest. Over time, as the interest portion decreases, more of your payment will go towards reducing the principal. Making additional payments towards the principal can reduce the overall interest you pay because interest is calculated based on the principal balance. Therefore, the goal for anyone making extra payments should be to reduce the principal as much as possible.

Monthly Mortgage Payments

Most homeowners make monthly mortgage payments. This method is common and convenient, as payments are made on the same day each month, making it easy to track. Many opt for automatic payments to ensure timely and effortless payments.

While monthly payments simplify budgeting, they may not be the best choice for paying off your mortgage faster. Compared to biweekly payments, you'll pay more interest over the life of your loan. Although making 12 payments a year is straightforward, it could result in higher overall costs for your home.

Biweekly Mortgage Payments

An alternative to monthly payments is making half your monthly payment every two weeks. This method can help you save on interest and pay down your mortgage faster. By making biweekly payments, you make 26 payments a year instead of 12, effectively adding an extra monthly payment annually.

For example, if your monthly mortgage payment is $1,200, you pay $14,400 annually. Switching to biweekly payments, you would pay $600 every two weeks, resulting in 13 monthly payments annually, totaling $15,600. This extra payment helps reduce your principal faster without significantly impacting your finances.

Bonus Biweekly Benefit

If you’re paid weekly or biweekly, biweekly mortgage payments can align with your paychecks, helping you stay on track financially. This method also supports better budgeting and faster mortgage payoff. Use our extra payments calculator to see how much you could save on interest with biweekly payments. If you’ve wondered, "How can I lower my mortgage payments over the long term?" biweekly payments may be the answer.

Drawbacks to Biweekly Payments

One drawback of biweekly payments is that some lenders may charge fees to enroll in a biweekly payment plan. Ensure you calculate whether the financial benefits outweigh these fees. Additionally, biweekly payments won’t improve your credit score. Credit bureaus analyze data on a 30-day cycle, so your credit rating remains unaffected by payment frequency.

How to Change to Biweekly Mortgage Payments

Switching to biweekly payments may require lender approval. If permitted, note that biweekly payments won’t be applied until you've reached your full monthly payment amount. In the first month, you might need to pay both your regular monthly payment and two half payments. Some lenders charge fees for changing payment agreements, so check for any associated costs.

If your lender doesn’t agree to biweekly payments, you can still make extra monthly payments or save up for an additional annual payment. Ensure any extra payments are applied to the principal, not the interest. Some mortgages don’t allow early payoffs and may charge prepayment penalties. Check your contract or consult your lender to confirm.

Which Payment Option is Right for Me?

The effectiveness of biweekly payments depends on various factors, including your mortgage terms and any fees for switching payment plans. Some homeowners save significantly, while others might not.