Should You Switch to Biweekly Mortgage Payments?

Most mortgages come with monthly payments, but switching to biweekly can reduce how much interest you pay and even help speed up the timeline of owning your home outright. However, simply making payments every two weeks doesn’t guarantee these results — reaping these benefits ultimately depends on how your lender handles biweekly mortgage payments.

Why make biweekly mortgage payments?

Making biweekly mortgage payments means paying half of your monthly mortgage payment every two weeks. Instead of making one payment each month, you’ll ignore the calendar months and go by weeks— 26 half-payments over the course of the 52 weeks in a year. It’s the equivalent of making one extra monthly payment per year, with one small but significant difference from your other payments: It will be applied only to your principal balance, not your interest.

Biweekly payments can cause more than two monthly payments

Because the months of the year have different lengths, paying “biweekly” means your payments will sometimes come up more frequently than twice a month. On a biweekly schedule, you’ll have two calendar months in which you end up making three payments. For the rest of the time, you’ll make only two payments per month.

As you can see, you would trim about five years from a 30-year loan term and also save $53,000 in interest by switching to biweekly payments.

Going with a biweekly payment schedule also means you’ll build equity faster. Here are a few reasons you might want to build equity as quickly as possible:

→ To get rid of PMI. If you put down less than 20% on your house, many lenders require you to pay for private mortgage insurance (PMI). Once you reach 20% equity, though, you can get rid of PMI and put that money toward your goals.

→ To tap your equity. If you want to make some home improvements, pay off high-interest debt or need cash for any reason, you may want to take out a home equity line of credit, home equity loan or cash-out refinance. The more equity you have, the more readily you’ll be able to access credit backed by your home equity.

→ To build wealth. Home equity is a driver of wealth and the largest asset in most households. Higher equity represents not only less risk of foreclosure but also more financial stability in general.

Advantages of biweekly mortgage payments

Here are some ways biweekly mortgage payments can save you money and hassle:

• Shortening your loan term. Biweekly payments can shorten the time it takes to pay off your mortgage. Since a mortgage payment is often a household’s largest monthly expense, no longer having one can free up a lot of disposable income and open the door to other financial goals.
• Reducing your interest. Shortening your loan term will reduce how much you pay in interest on the loan. Because the principal balance is decreasing at a faster rate than was planned for in the amortization schedule based on the original loan term, you’ll pay less interest on that amount, saving you money.
• Simplifying budgeting. You may find it easier to budget your money with biweekly payments, particularly if you get paid every other week from your job.
• Building equity faster. The more you pay toward your mortgage principal, the faster you will build home equity that could be leveraged for future expenses or goals. Plus, having more equity can lower your loan’s LTV when you take out a cash-out refinance, which is an advantage for conventional loan borrowers who must pay fees on that loan based on LTV and credit score.
• Maintaining your credit. Credit bureaus report payments the same way — either on-time or late — whether you’re paying biweekly or monthly. So you won’t have to worry about damaging your credit, as long as you keep up with your payment schedule.

Disadvantages of biweekly mortgage payments

Although there are some great benefits of making biweekly mortgage payments, there are drawbacks to making the switch as well.

• Facing potential prepayment penalties. Your lender may have included a prepayment penalty clause in your loan agreement stating you have to pay a fee if the mortgage is paid off early. This fee may exceed any savings you receive from switching to biweekly mortgage payments.
• Paying third-party service fees. If your payments are set up through a third-party service, it may charge you fees to pay biweekly. These fees can cut into the potential savings you’d earn by switching from monthly to biweekly payments.
• Cutting off other priorities. While it may not seem like much, applying that extra payment to your mortgage could take away from boosting your retirement savings or paying for other upcoming expenses, such as buying a new car or covering college tuition. And if you have high-interest debt, it will most likely make more sense to pay it off before trying to pay off your mortgage early.
• Dealing with an expensive first month. In some cases, switching to a new payment schedule could mean you have to pay both your final monthly payment and your new biweekly payments within the same month before you can continue on a biweekly plan.

How to set up biweekly mortgage payments with your lender

Do your research

Before switching from monthly to biweekly mortgage payments, it’s imperative you speak with your lender about how they handle these types of payments.

Your lender can legally place your partial payment in a special account until the full payment amount is received, according to the Consumer Financial Protection Bureau (CFPB). Only then is the company required to apply the amount to your loan, negating one of the benefits to making biweekly mortgage payments.

Set up the plan with your lender

If your lender doesn’t charge any prepayment penalties, you can move forward with establishing a payment plan for biweekly mortgage payments. To reap the full benefits of such a plan, you need to instruct the lender to apply the extra payments toward your mortgage principal, not the interest you owe. If you skip this crucial step, you likely won’t achieve your goals of reducing the interest you pay over the life of the loan or shortening the loan term.

Biweekly mortgage payments checklist

• Your lender permits paying biweekly
• There are no prepayment penalties or transaction fees
• You’ve specified to your lender that the extra payments are going toward the principal
• Your loan has a fixed interest rate

How to set up your own biweekly payments schedule

If you’re facing fees for getting on a biweekly payments schedule, you can do it yourself without involving the lender or a third party at all. Here’s how:

Step 1Divide your monthly payment by 12.

Step 2Put that much money in a savings account each month and continue making your monthly payments normally.

Step 3At the end of the year, make one extra principal-only payment in full with the money you saved.

Then you will have made the equivalent of 13 monthly payments — all without needing to get on a special payment plan.

Alternatives to biweekly mortgage payments

Switching to biweekly mortgage payments may not be right for everyone. Fortunately, there are alternative ways to pay your mortgage faster, including:

• Paying extra each month. Review your budget to see if you have extra cash to apply to the mortgage principal. Even $50 can help reduce the principal and the total amount of interest you pay on the mortgage.
• Refinancing and paying the savings. It’s possible to refinance your existing mortgage and get a new loan with a lower refinance rate and monthly payment. To reduce your mortgage balance more aggressively, one trick is to continue paying your previous monthly payment amount and instructing your lender to apply the extra cash to your principal.
• Rounding up payments. Instead of sending the exact payment amount — say, $1,235.50 — round it up to $1,300 and apply the extra amount to the mortgage principal.
• Applying bonuses or tax refunds. Any time you receive some extra cash, such as a tax refund or year-end work bonus, apply it to your principal.