Homeowners looking to cut their overall mortgage debt can get the job done by doubling the number of payments they make to their mortgage company every year.
The practice is called bi-weekly mortgage payments, a strategy where mortgage loan customers pay their mortgage loan every two weeks, instead of once a month. The idea is to chop down your mortgage payment more quickly, and in the process, lower the amount of interest you pay on your mortgage overall. (For more on how interest and APRs actually work, read this.)
The numbers back that sentiment up. Paying your mortgage every two weeks adds one full payment each year (13 payments—based on 26 bi-weekly payments each year, versus 12 monthly payments).
Savings Add up with Bi-Weekly Payments
Consider a traditional 30-year mortgage of $200,000 with an interest rate of 6.5%. Normally, that would require the homeowner to make a monthly payment of $1,264.14. By using a bi-weekly payment plan, the homeowner would pay $632.07 every two weeks and, in doing so, cut six years of payments off of the mortgage loan and save $58,747 off the total amount of the loan. (Looking for help refinancing your mortgage? Read this.)
“A bi-weekly payment plan is far more effective than merely sending one additional payment per year,” says Michael Hausam, a realtor and mortgage broker in Newport Beach, Calif. “Your loan balance accrues interest every day and reducing that principal balance every 14 days (26 half payments per year) saves more in interest charges than one full additional payment every 12 months, even though the total amount in payments every year remains the same.”
Lisa Orban, an author, and an Illinois-based homeowner has been a regular bi-weekly mortgage payment payer since she purchased her residence and has a good reason for the strategy.
“I pay bi-weekly for a number of reasons, but the primary one is almost immediately more money is put towards the principal rather than the interest,” Orban says. “The payment on the first of the month more goes towards interest, but the payment on the 15th shifts and more money is put towards the mortgage loan principal.”
It’s important to note, however, that not all mortgage services allow bi-weekly payments. To find out where you stand, reach out to your lender and ask about your bi-weekly mortgage payment options. If they are permitted, then you lender can walk you through the process of setting up the new payment plan.
Alternatives to Bi-Weekly Mortgage Payments
Bi-weekly mortgage payments aren’t the only way to save money long-term on a home mortgage.
“I like three different scenarios,” says Elisa Meyer, a former real estate agent and personal finance specialist with At Your Pace Online, a digital-based education services provider. “Each can help you save money on your mortgage.”
- Come up with a way (whatever works for you) to set aside the money every two weeks, and then pay that money toward the mortgage each month.
- Use your year-end bonus, tax return, or other “windfall” money to make one extra payment each year.
- Take your monthly mortgage payment, divide it by 12, and add that amount to your monthly automatic payment. You’ll make an extra payment every year.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer, or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.