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Should You Make Biweekly Mortgage Payments?

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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.


Published or updated September 20, 2010.
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{ 12 comments… read them below or add one }

1 Briana @ GBR

This is a great plan. I didn’t think about the extra month’s payment (since there’s some months that have 5 weeks instead of 4). Will definitely keep that in mind as I’m searching for a house.

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2 basicmoneytips

Most mortgages do not have a early payoff penality. With the stock markets flaundering you would be better off to put more money in your home. Having your home paid off early is certainly a good thing.

If it is possible in your financial situation, I would switch to bi-weekly mortgage payments.

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3 Ryan

This is something I’ve know about for a long time, but haven’t actually started doing. I’ve been paying extra (roughly an extra payment each year when it adds up), but I haven’t been sending in the checks every 2 weeks. The added benefit of sending in the checks early is that it incrementally reduces your outstanding balance and slightly reduces the assessed interest with each payment. It adds up over time!

I think I should take my own advice on this one! :)

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4 KP

Great financial tip Ryan! Sometimes mortgage companies share the savings benefit with you too. The only catch is they want you to signup to have them handle the payment for you for a FEE (oh, the price you pay for convenience)!!! I’m with you in doing it yourself to save more money. :)

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5 Thrifty Gal

What I did was just add some extra money (whatever I could afford) each month (after I replenished savings depleted by the down payment). I paid off my home in 13 years. How can you send in an extra payment when they give you only 12 coupons?

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6 WR

Good article.

The math makes sense but you need to make sure that your lender will accept bi-weekly payments.

If your lender simply sandbags the first payment and applies it to your loan once per month there is no benefit.

I have heard of people sending in extra payments clearly marked ‘principal curtailment’ that were just applied to the following months mortgage.

I don’t think there is a conspiracy. It is more a case of most lenders do not see extra payments very often.

Once you verify that the extra payment is being applied correctly you benefit from the relatively minor change in payment structure.

Those of us who use automatic bill-pay through our banks can make this process even more effective.

-WR

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7 Ryan

Great point, WR. My bank automatically applies the payment on the due date, regardless of when they receive it, unless I tell them otherwise. Many banks will work with you and apply the payment when they receive it, but they may need the instruction for it to take effect, simply because of the policies htey have in place.

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8 kim

Just a caution to all. There is a slight negative to biweekly payments. For the most part they work great, but I am going thru a real learning experience right now. Quick overview: We own two businesses and my husband plays an important part in both. He had a medical emergency that put him out of work for 18mths out of two years. One of my loans was on biweekly payments. We fell behind on that loan due to no regular income. I asked the bank to take me off auto withdrawl which on the contract included biweekly payments. I ASSUMED that was all I needed to do. We are making double payments on all loans to catch up and I keep falling further behind on the one that was on biweekly. We just were told that we are still expected to make the extra payments on the loan, even though we were under the assumption that all had gone back to one monthly payment. So my advice to anyone considering biweekly payments is to be sure you understand the terms, (as with any loan) because you never know when an emergency can pop up in your life. We all like to think this wont happen to us. I was never late on a payment and never dreamed I would have to deal with this, so read understand and file this advice for future reference.

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9 Ryan

Thanks for the info, Kim, and I’m sorry to hear about your husband’s health issues. I hope he is well now.

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10 Jake

Ryan,

Great article, it’s important for consumer to understand the effects of long term debts. . . . small changes to the way they get repaid can have enormous effects on the amount of interest you pay -or- save! Whether someone tries to do it themselves, or decides on a third party to administer their result to help guarantee the results prepayment of loans should be discussed more frequently. Our county wouldn’t be int he mess it is today, if Americans didn’t maintain such a large appetite for debt. thanks for the article!

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11 Julie

I just want to make sure I understand correctly, at this very moment were contemplating signing up for either bi-weekly or just sending in extra payment at the end of the year. It sounds like the bi-weekly is a better option?

We keep getting mail from our mortgage company, however they want to charge over $375.00 that part doesn’t make sense to me.

Your thoughts?

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12 Ryan

I don’t think it’s worth paying your mortgage company anything to make biweekly payments. Most mortgages nowadays have no prepayment penalties, so you would essentially be paying them for something you can do yourself. I recommend looking at the terms on your mortgage to verify there is no prepayment penalty, and if there isn’t, then just set up your own bi-weekly payment plan with an automated payment schedule through your bank.

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