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Updated on Friday, November 23, 2018
Maybe you’ve heard whispers among friends and family that making biweekly mortgage payments — once every two weeks instead of once a month — can help you pay off your loan sooner. In most cases that’s true, but did you know there are a ton of other benefits, as well?
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If you’re intrigued, stay tuned. We’ll show you exactly how to make biweekly payments work for you and the benefits.
The secret extra payment
If you’re like most people paying your mortgage once per month, you’ll get 12 full mortgage payments in a year.
But what if you make biweekly payments? In that case, either you or your lender will split your payments in half and submit a payment twice each month. For example, if you normally make a $1,000 monthly mortgage payment, you’ll instead make a $500 mortgage payment every two weeks.
This leads to the quirk in the calendar that lets you get ahead. There aren’t a uniform number of days in each month, and so by making biweekly mortgage payments, you’ll make 26 “half-payments,” or 13 “full” payments per year instead of the normal 12 payments. In other words, you make one extra full payment per year, and you won’t even feel it because you’ve budgeted for it.
This extra payment might not seem like much, but over the course of the loan, it has huge effects.
Let’s look at an example. Say you just bought a house and have a $200,000 mortgage with a 30-year loan term, and your interest rate is 4.125% APR. Here’s what will happen if you stick to the regular monthly mortgage plan, versus opting for biweekly mortgage payments:
Number of payments per year
Total Paid per Year
Number of Years
25 years and 10 months
Total Interest Paid
In this example, making biweekly payments allows you to pay off your mortgage a full four years and two months earlier, and saves you $19,080.68 to boot.
One caveat: Rarely, some lenders will charge you to make biweekly payments, since it’s essentially twice as much work for them to process. If your lender does this, it may be better to stick with your normal monthly payment plan. If you want to make biweekly payments, you can still do so manually for free by setting aside a portion of your paycheck on your own, paying your normal monthly payment, and then submitting an extra payment once per year.
The case for making biweekly mortgage payments
1. Build equity faster
Home equity is the amount of your home that you actually own versus how much you owe your mortgage lender. For example, if your home is worth $200,000 and you still owe $150,000 on your mortgage, you have $50,000 of home equity.
One of the biggest benefits of making biweekly mortgage payments is that you build home equity faster. You may not realize it, but when you are in the early years as a mortgage borrower, the vast majority of your mortgage payment goes toward interest — not the principal balance on your loan. And until you are significantly chipping away at that principal loan balance, you aren’t actually gaining equity (unless, of course, the value of the home increases enough to eclipse your mortgage loan balance).
When you make biweekly payments and manage to squeeze in that extra payment each year, you’ll be making extra payments toward reducing the balance of your loan. And that extra payment will give you a small push toward building equity.
There are a lot of advantages to having as much home equity as possible. If you have enough home equity, you can take out a home equity loan to finance things like home repairs or remodels, for example.
Another example where having more home equity can help you is when you sell your house. Many homeowners are surprised how expensive it can be when they go to sell their home, all thanks to closing costs, which can amount to tens of thousands of dollars on top of your original loan.
That’s a big problem if you don’t have enough equity built up in your home to cover the cost. You might end up actually having to pay to sell your home, and losing your down payment money for your next home to boot. One of the best ways to guard against this is to build up as much home equity as you can as fast as you can, and making biweekly mortgage payments is a good way to do that.
2. Pay less interest over time
When you make a mortgage payment, the bank actually splits up up the money and divvies it out to various things. During the first few years after you take out your mortgage, most of the money will be going toward interest and very little will be going to reducing the balance of your loan (sadly). This process is called amortization, and anyone who’s ever had a loan literally had to pay their dues, especially during those first few years.
But, again, here’s where making biweekly mortgage payments can really help you. Since you’ll be making an extra payment each year, you’ll pay down the principal even faster. This means that each interest payment thereafter will be smaller than if you hadn’t made that extra payment.
Over the course of your loan, this can save you a huge amount of money. For example, if you have a $400,000 mortgage, making biweekly mortgage payments can save you over $38,000 in interest.
3. Pay off your mortgage faster
If you make biweekly payments, you’ll be chipping away at your principal balance faster than normal. We won’t lie — it’ll still seem like you’re paying off the mortgage at a glacial pace, but you’ll have a slightly sharper pick than your neighbor making monthly payments.
If you have a $300,000 mortgage and you’re making biweekly mortgage payments, you can actually shave off four years and two months from your loan. Instead of being in debt for 30 years, you’ll only be in debt for 25 years and 10 months.
4. Drop your PMI payment sooner
In 2017, the average homebuyer bought their home with a 10% down payment. That’s not bad, but for most conventional loans (not including FHA, VA and USDA loans), you’ll need a down payment of at least 20% to avoid paying for private mortgage insurance each month. This fee, which is tacked onto your monthly mortgage payment, protects your lender in case you default on your loan. In other words, it doesn’t even protect you—it protects your lender in case you mess up.
Once you reach 20% equity in your home, you can ask your conventional lender to cancel your PMI payments. If you make biweekly payments, you can actually get there a lot faster because you’ll be paying down the balance of your loan quicker than normal.
Let’s look at an example. If you have a $350,000 mortgage and only put down 10% like most people, you’d owe an extra $164.06 each month to pay for PMI. If you make biweekly payments, you’ll hit 20% equity 13 months sooner than if you were making monthly mortgage payments. That’ll save you an extra $2,132.78 in PMI charges.
5. It’s easier to budget
Even if you’re a super budgeter and on top of your finances, saying goodbye to so much cash at once hurts.
If nothing else, biweekly mortgage payments take the stress out of those big payments. If you’re paid biweekly, it’s even easier — just send in the check each time you get paid, if that’s the due date that you agree on with your lender.
That way, the money won’t be sitting in your account until next month, just begging to be spent on something else and leaving you short of the bill when your monthly mortgage payment does come due. Making biweekly payments in this way can save you a ton of stress in addition to all the financial benefits.
By default, almost everyone is put on a monthly repayment plan. It’s how we’re conditioned to think about debt: after all, just about every type of loan is paid back on a monthly basis, including credit cards, student loans, auto loans and personal loans. In some cases, like for student loans, you may be able to switch to a biweekly payment plan, but it’s not very common.
That doesn’t mean you need to stick with the mold, though. We’ve shown five great benefits to switching over to a biweekly mortgage payment plan. You’ll:
- Build equity faster
- Pay less interest over time
- Pay off your mortgage faster
- Drop your PMI payment sooner
- Budget for housing more easily
If you’re interested in switching to a biweekly mortgage payment plan, the next step is to contact your lender to ask about it. Your future self will thank you.