Our mortgage lenders encourage us to pay our mortgage bi-weekly, instead of monthly. We would send off half of our normal mortgage payment every other week. That would make 26 annual payments, instead of 24 (12 months x 2). So we would end up making one extra payment per year to save us a bunch of interest over the long term.
Faster Loan Repayment
With biweekly payments, you end up making one extra mortgage payment per year, as you pay 26 half-payments or 13 full payments, which can help you pay off your loan faster.
Saves Interest
By making more frequent payments, you reduce the outstanding balance on your loan more quickly, resulting in less interest accrued over time.
Budgeting
Biweekly payments can align with your pay schedule, making it easier to budget and manage your finances.
Paying your mortgage biweekly, instead of monthly, can offer some potential benefits. Here are considerations to help you decide if biweekly payments are right for you:
Lender Approval
Before switching to biweekly payments, check with your lender to ensure they allow this option. Some lenders may have specific requirements or charge fees for biweekly payment programs.
Beware of Loopholes
Some lenders will credit any extra payments you make towards the next payment. That means you aren’t really paying down the principal, just merely paying the next payment early. The difference is subtle, but the result is that you still pay the interest you thought you were avoiding. Check with your bank before you set this up. Some banks will require you to specify that the payment be made towards your principal instead of towards the monthly payment. If this is the case, all you have to do is set up two automatic payments.
Avoid Being Locked In
One disadvantage to signing up for a biweekly payment schedule is that you’re now required to pay every other week. If you send biweekly payments on your initiative, you can always stop the practice if it no longer makes sense for you financially. However, if you sign a biweekly contract with your lender, you’re stuck with the payment plan. If you get paid every two weeks, it may not be a problem. But if you encounter financial difficulties in a particular month, you might need more flexibility.
Low Rates Mean Less Savings
Biweekly mortgage payments tend to be much more attractive when interest rates are higher. For example, suppose you have just taken out a 30-year fixed mortgage at 7%. Paying that mortgage biweekly from the very beginning means you will have the home paid off in less than 24 years. It would save you over $33,500 in interest on every $100,000 of principal.