When you take out a mortgage to buy a home, you're typically expected to make monthly payments. However, some homeowners opt for biweekly payments to pay off their mortgage faster and reduce the total interest paid over the loan's life. Understanding how biweekly mortgage payments work and whether they'll help you achieve your financial goals is essential.

Why Consider Biweekly Mortgage Payments?

Accelerated Mortgage Repayment

Most homeowners make 12 mortgage payments annually when paying monthly. Switching to biweekly payments means you pay half of your monthly amount every two weeks, resulting in 26 payments over a year. This equates to 13 full monthly payments instead of 12.

Joe Zeibert, senior director at Ally Home, explains that this extra payment each year can significantly reduce the total interest paid and accelerate the reduction of your principal balance. For example, with a 30-year fixed loan of $250,000 at a 4% interest rate, biweekly payments could save nearly $30,000 in interest and shorten the loan term by about five years. Even if you only stay in the home for seven years, you'd still save thousands in interest and reduce your principal by $10,000 more than with monthly payments, providing more equity for a future home purchase.

Improved Financial Discipline

Making biweekly payments can also help instill financial discipline. By making smaller, more frequent payments, homeowners may find it easier to manage their finances and budget effectively. This regular payment schedule can align with biweekly paychecks, making it more convenient to allocate funds towards mortgage payments without feeling a significant financial burden.

Learn More: Learn how to pay off your home faster.

Caution with Payment Processing Companies

Lender-Provided Biweekly Payment Plans

Some lenders offer biweekly payment plans. For instance, Navy Federal Credit Union has a program for biweekly payments and a Budget Easy program that automates these payments or allows switching back to monthly payments if needed.

Third-Party Payment Processing Services

If your lender doesn’t offer a biweekly option, you might consider third-party payment processing services. Be cautious, as these services often charge setup fees around $300 and may have monthly fees. Additionally, some services merely hold your second payment until the next month, effectively making monthly payments and negating the benefit of an extra annual payment. If approached by such a company, investigate thoroughly before committing.

DIY Biweekly Payments

Calculate Extra Payments

If your lender doesn't provide a biweekly payment option, you can manage it yourself. Here's how:

• Divide Your Monthly Payment: Divide your monthly mortgage payment by 12 and make an extra principal-only payment of that amount each month.

• Save Monthly: Alternatively, save that amount monthly and make one extra payment annually.

Confirm with Your Lender

Ensure there are no prepayment penalties on your loan and verify that extra payments are applied entirely to your principal.

Benefits of DIY Biweekly Payments

Biweekly payments can be beneficial if your finances allow it. Using a biweekly mortgage payment calculator can help estimate your potential savings.

Potential Drawbacks of Biweekly Payments

Cash Flow Challenges

While biweekly payments can offer significant savings, they may not be suitable for everyone. Homeowners with irregular income or tight budgets might find it challenging to manage more frequent payments. It's essential to assess your financial situation to ensure that biweekly payments won't strain your cash flow.

Limited Flexibility

Some biweekly payment plans, especially those managed by third-party companies, might limit your flexibility in managing your mortgage payments. Once you enroll in such a plan, it can be difficult to revert to monthly payments without incurring additional fees or complications.

Additional Strategies to Pay Off Your Mortgage Faster

Make Extra Principal Payments

In addition to biweekly payments, making extra principal payments whenever possible can help reduce your mortgage balance more quickly. Even small additional payments can have a significant impact over time. For example, applying a tax refund, bonus, or other windfall towards your mortgage principal can help you save on interest and shorten your loan term.

Refinance to a Shorter-Term Loan

Refinancing your mortgage to a shorter-term loan, such as a 15-year fixed-rate mortgage, can also help you pay off your home faster. While this option typically results in higher monthly payments, the total interest paid over the life of the loan is significantly lower, and you'll own your home outright much sooner.

Round Up Your Payments

Another simple strategy is to round up your monthly mortgage payments to the nearest hundred dollars. For example, if your monthly payment is $965, rounding up to $1,000 can help you make additional progress towards paying down your principal balance without significantly impacting your budget.

Biweekly Payments: A Practical Example

Consider a homeowner with a $300,000 mortgage at a 4% interest rate on a 30-year term. With monthly payments, they would pay approximately $215,609 in interest over the life of the loan. By switching to biweekly payments, they would pay off their mortgage in about 25 years and save over $30,000 in interest. This example illustrates the substantial financial benefits of biweekly payments.

Final Thoughts

Biweekly mortgage payments can be a powerful tool for homeowners looking to pay off their mortgage faster and save on interest. By understanding the benefits and potential drawbacks, you can make an informed decision about whether this payment strategy aligns with your financial goals. Whether you choose to enroll in a biweekly payment plan through your lender, use a third-party service, or manage the payments yourself, careful planning and budgeting can help you achieve homeownership more quickly and with less financial strain.