Paying your mortgage biweekly is a strategy that can reduce your principal balance faster and cut your total interest costs, allowing you to own your home debt-free sooner. However, it might not be as effective as you think because of how mortgage servicers can handle extra payments.
Here’s what you need to know about biweekly mortgage payments:
- How biweekly mortgage payments work
- Biweekly mortgage payments and your loan terms
- Pros and cons of paying your mortgage biweekly
- How to set up biweekly mortgage payments
- Other ways to reduce your principal balance faster
How biweekly mortgage payments work
When you pay your mortgage biweekly, you pay half of your monthly principal and interest every two weeks. This means that you’ll make 26 payments per year — the equivalent of 13 monthly payments. So, if you normally make 12 payments of $2,000 each every year, you’d instead switch to making 26 payments of $1,000 each.
If your lender immediately applies each payment, you’ll pay down your principal significantly faster, which means you’ll accumulate less interest.
Some lenders don’t accept partial payments, so your lender might not apply your biweekly payments as you make them. Instead, they’ll apply them once a month.Tip: If your monthly payment includes homeowners insurance and property taxes that go into an escrow account, don’t factor those amounts into your biweekly payment plan.
Biweekly vs. monthly mortgage payments
Paying biweekly can save you thousands of dollars in interest and cut the life of your loan by several years.
The table below shows how much time and money you can potentially save by opting for biweekly mortgage payments vs. monthly mortgage payments. The example assumes a mortgage balance of $200,000 with a 30-year term and an APR of 4%.
|Time to pay off||25 years||30 years|
|Total interest you’ll pay||$120,360||$143,739|
|Total interest savings||$23,379||None|
Biweekly mortgage payments and your loan terms
If you took out your mortgage in the last few years, you received a form called the closing disclosure before finalizing your loan. It has two important pieces of information for anyone thinking about biweekly payments.
This section on Page 4 says whether your lender will:
- Accept partial payments that are less than your monthly payment amount and apply them to your loan
- Accept partial payments but hold them until you make the rest of your monthly payment
- Not accept partial payments
This section on Page 1 says whether your lender can charge you a fee for repaying your loan before its scheduled maturity date.
For example, it might say that you could owe up to $3,000 if you pay off the loan during the first two years, which could happen if you refinanced or sold. Tip: A prepayment penalty like this won’t affect you if you’re accelerating your mortgage payoff by a few years.
However, you should make sure your mortgage terms don’t stipulate any early payoff fee — particularly if your loan came prior to 2014 — that would negate the savings you’re trying to achieve with biweekly payments.
Pros and cons of paying your mortgage biweekly
While the potential savings of biweekly payments might be enticing, there are drawbacks that could make this payment strategy less worthwhile to you.
- Save money on interest: The higher your mortgage interest rate, the more you can save by making biweekly payments.
- Pay off your mortgage sooner: If you make biweekly payments from the beginning of a 30-year mortgage, you can potentially pay it off in 25 years.
- Match your mortgage payments with your work paydays: You may have an easier time managing your monthly cash flow if you closely coordinate your income and expenses.
- Less money for other things: Putting extra money toward your mortgage has an opportunity cost. Directing that cash to your student loans, credit cards, and/or retirement savings may benefit you more in the long run.
- Costs extra to get the money back: Yes, you build home equity faster when you make extra principal payments. But if you end up having to re-borrow that money through a home equity loan or cash-out refinance, you’ll set yourself back. Not only will you draw down your equity, but you may pay borrowing fees and a higher interest rate on the new loan.
- Payments might actually be applied monthly: Mortgage servicers won’t necessarily apply your payments to your account every two weeks. Instead, they’ll often hold the first payment until you make the second payment, then apply both payments together to your full monthly mortgage payment. You’ll still come out ahead, but you’ll save less interest and keep your loan longer.
How to set up biweekly mortgage payments
Some mortgage servicers offer their own biweekly mortgage payment plans, giving borrowers a clear way to make more frequent payments. You can also easily handle biweekly payments yourself, which may have added advantages.
Through your mortgage servicer
Check your mortgage servicer’s website for information about biweekly payment options. They may require you to be one month ahead on your mortgage before enrolling in a biweekly payment plan.
On top of that, your loan servicer’s plan may not even apply the payments to your account every two weeks. For example, Caliber Home Loans states that the only benefit of enrolling in a biweekly payment program is that your 13th and 26th payments each year will be applied to your principal balance, reducing what you owe faster.Tip: Avoid any third-party payment services that charge you fees for the “convenience” of making biweekly payments to your loan servicer — they won’t net you any additional savings, and your payments can be easily managed through your loan servicer or by yourself.
What’s worse, trusting these third parties with your money sets you up to get scammed and fall behind on your mortgage.
Handling biweekly payments yourself gives you the most control over the process and is completely free.
When you log in to your mortgage account, your servicer may provide the option to make an extra principal payment as long as you’re current on your mortgage.
Divide your monthly mortgage payment by 26 to get the amount of extra principal you should pay every two weeks. Keep making your monthly mortgage payments in full, as usual.
Managing biweekly payments yourself also allows you to easily switch back to monthly payments at any time without contacting your mortgage servicer. Tip: If your servicer doesn’t offer this option, you can add an extra principal payment to your monthly mortgage payment. Divide your monthly mortgage payment by 12, and pay that amount as extra principal each month, along with your regular payment.
Another way to reduce your principal balance faster
Besides making biweekly mortgage payments, there are other strategies you can use to pay down your principal faster.
Refinance to a shorter loan term
Best if: Refinancing will substantially lower your interest rate
Refinancing to a shorter loan term only makes financial sense if your interest rate savings will exceed the closing costs for your new loan. The fewer months it’ll take for you to gain this benefit, the better, but your breakeven point should definitely be sooner than when you expect to sell your home.
If you’re ready to refinance, Credible makes the whole process easy. You can compare multiple lenders and see prequalified refinance rates in as little as three minutes without leaving our platform.