Most mortgages are scheduled with one payment due each month, or twelve per year. With a once-a-month mortgage payment schedule, you know exactly how much you need to pay and on which date each month, which helps you budget. But you might be surprised how much money you could save if you split your monthly payment in half and paid it every other week instead of once a month!
Benefits of Biweekly Mortgage Payments
There are 52 weeks a year, and if you pay half of your total monthly mortgage payment every other week, you end up making 26 payments. If you were to just pay twice a month all year, you would make 24 payments a year – but the biweekly method of mortgage payments actually causes you to make two extra “half” payments per year, or the equivalent of one extra monthly payment over the course of the year.
A biweekly payment example. If your mortgage is $1200 per month, you pay $14,400 per year in once-a-month payments. If you decided to send biweekly payments instead, then you would send $600 every other week. It sounds the same until you realize that you’ll be sending 26 payments of $600 instead of 24 payments of $600. The extra $1200 is applied directly to your mortgage principal, which pays your mortgage off sooner and reduces the amount of money you pay for interest. The larger your mortgage, and the higher your interest rate, the greater your savings. But to give you an idea, on a $100,000, 30 year fixed mortgage with 6.5% interest, you can expect about $127,544 in interest on top of the $100,000. If you pay half the mortgage payment every two weeks instead of making once-a-month payments, you save over $30,000 in interest!
How to Get Started with Biweekly Mortgage Payments
Before you decide to send your payment in biweekly, make sure you check with your lender to make sure you don’t have a pre-payment penalty. As long as there is no pre-payment penalty, you should be okay to send payments biweekly. Verify with your lender that they will apply the extra money to the principle, and that each biweekly payment is credited upon receipt – because if the lender holds the payment until the other one is received, you won’t save on interest or time to pay off your mortgage. (It’s the same as paying once a month).
Some mortgage lenders will ask you if you want to re-schedule your mortgage payments on a biweekly basis with them. Don’t sign up for this special payment plan if it charges fees – whether they are one-time fees or ongoing fees. It should NOT cost you any extra money to send extra payments on your loan.
If your lender doesn’t accept payments on a biweekly basis, or doesn’t credit the account biweekly when sending in payments, you can get the same benefit by sending just one extra monthly payment per year.