How Paying Your Mortgage Biweekly Helps You Save Money

Owning a home often involves a mortgage, a substantial loan typically structured with monthly payments. Biweekly mortgage payments offer an alternative approach to managing this financial commitment. This article explores how biweekly payments function and the financial benefits they can provide to homeowners.

Understanding Biweekly Payments

Biweekly mortgage payments involve a different schedule than the standard monthly approach. Instead of one monthly payment, borrowers pay half of their regular monthly mortgage amount every two weeks. With 52 weeks in a year, this results in 26 half-payments annually, translating to 13 full monthly payments over the course of a year, rather than the traditional 12. For instance, if a homeowner’s monthly mortgage payment is $2,000, a biweekly plan would involve paying $1,000 every two weeks. Over 52 weeks, these 26 payments would total $26,000 annually, which is one extra monthly payment compared to the $24,000 paid under a standard monthly schedule.

Impact on Interest and Loan Term

The primary advantage of biweekly payments stems from the extra annual payment, which is applied directly to the loan’s principal balance, reducing the amount on which interest is calculated. Because interest accrues daily on the outstanding principal, more frequent payments lead to a faster reduction of the principal, meaning less interest accumulates over time. This accelerated principal reduction lowers the total interest paid over the life of the loan. For example, a $200,000, 30-year mortgage at 4% could save around $30,000 in interest, while a $400,000 mortgage at 6.5% could save over $119,000 and reduce the loan term by almost six years. This extra payment can shorten a 30-year mortgage by several years, often between four to eight, depending on the loan amount and interest rate.

Implementing Biweekly Payments

Homeowners interested in biweekly mortgage payments should first contact their mortgage lender or loan servicer. Not all lenders offer a direct biweekly payment program, so inquire about their specific options and any setup or transaction fees. Confirm that any additional payments will be directly applied to the loan’s principal balance to maximize savings.

If a direct biweekly program is not available or fees are too high, homeowners can still achieve similar results. One alternative is to manually make an extra principal-only payment each year. This can be done by dividing the monthly payment by twelve and adding that amount to each regular monthly payment, or by saving that amount monthly and making one lump-sum principal payment annually. This self-managed approach ensures accelerated principal reduction without reliance on a lender’s specific program.