How Biweekly Mortgage Payments Can Save You Money: A Homeowner’s Guide

Owning a home is one of the most significant investments you’ll make in your lifetime. Naturally, finding ways to pay off your mortgage faster while saving on interest is a smart financial move. One increasingly popular strategy to achieve this is making biweekly mortgage payments. This approach, while subtle, can yield significant savings over the life of your loan. In this guide, we’ll explore how biweekly payments work, how they benefit you, and how to determine if they’re the right choice for your financial situation.

What Are Biweekly Mortgage Payments?

Biweekly mortgage payments are a payment schedule where, instead of making a full mortgage payment once a month, you split your payment into two smaller payments, made every two weeks. Over the course of the year, this results in 26 half-payments, or 13 full payments—one extra payment than you’d typically make on a standard monthly schedule.

This seemingly minor adjustment can save you thousands of dollars in interest over the life of your loan and help you pay off your mortgage faster.

The Benefits of Biweekly Mortgage Payments

1. Accelerate Your Mortgage Payoff

With biweekly payments, you make one additional mortgage payment each year. This extra payment is applied directly to the principal, reducing your loan balance faster than if you stuck to a traditional monthly payment plan. For example, if you have a 30-year mortgage, switching to biweekly payments could shave off several years from the term of your loan.

2. Significant Interest Savings

By paying down your principal faster, you reduce the amount of interest you’ll accrue over the life of the loan. The savings can be substantial, especially if you have a large loan amount or a high interest rate. Over time, those interest savings could add up to tens of thousands of dollars.

3. Budget-Friendly Adjustments

Splitting your monthly mortgage payment into two smaller biweekly payments may fit more easily into your budget. You’re paying the same monthly amount but in smaller, more manageable portions. It’s an excellent strategy for those who are paid biweekly and want to align their mortgage payments with their paycheck schedule.

4. Build Equity Faster

Making that extra payment each year accelerates your equity building. This can be especially beneficial if you plan to sell your home before paying off the mortgage. The more equity you have, the more profit you’ll make when it’s time to sell, giving you a stronger financial foothold when moving to your next home.

How Much Can You Save with Biweekly Payments?

Let’s break it down with an example. Suppose you have a 30-year fixed-rate mortgage for $750,000 at a 6% interest rate. With traditional monthly payments, you would pay $4,497 per month in principal and interest. This does not include the additional PMI estimated at $313/mo and annual taxes estimated at another $688/mo. Over the life of the loan, you’ll pay approximately $1,618,785 —meaning you’ll pay $868,786 in interest alone.

If you switch to biweekly payments, you’ll make an extra payment each year that goes directly toward reducing your principal balance. This accelerates the payoff process, allowing you to pay off the mortgage 5 years and 7 months faster. More importantly, you’ll save about $191,108 in interest payments over the life of the loan, meaning you’ll save 22% in interest and pay off the loan 19% faster.

If you want to play with the numbers yourself, I recommend checking out this great mortgage payoff calculator.

But what if you want to supercharge your mortgage payoff plan and save even more?

Another Way to Save: Skip the Daily Coffee Run

One of the simplest ways to add to your savings is by rethinking your daily habits. Let’s say you stop grabbing that daily $8 coffee from Starbucks and, instead, set up an automatic transfer of $8 per day into your savings account. You’ll have saved an extra $2,920 at the end of the year.

Now, imagine putting that $2,920 toward an additional annual mortgage payment. You’re already saving big with biweekly payments, but adding this extra lump sum can really supercharge your payoff plan.

By applying that $2,920 annually to your mortgage principal, you’ll cut another $135,494 in total interest over the life of the loan. Even more impressive, you’ll knock nearly 4 additional years off your mortgage term, getting you that much closer to owning your home free and clear or sacking away your equity for when you decide to sell.

The Power of Small Habits for Big Savings

Giving up a daily cup of coffee might seem like a small sacrifice, but the long-term impact on your mortgage can be enormous. Instead of spending $8 a day on a quick caffeine fix, you could save tens of thousands of dollars in interest and shorten your mortgage term by years. By combining the power of biweekly payments with an annual extra payment, you’re essentially hitting the fast-forward button on your journey to financial freedom.

With the biweekly plan and your coffee savings combined, you’re working with a two-pronged strategy that accelerates your mortgage payoff and saves you even more in interest. Over the life of a 30-year loan, this extra effort could reduce the total time to pay off your mortgage to around 21 years while keeping your day-to-day financial habits relatively simple.

Is There a Catch?

While biweekly payments offer clear advantages, there are a few considerations to keep in mind:

1. Lender Policies: Not all lenders offer a biweekly payment option directly. If your lender doesn’t offer this plan, you can always set it up yourself by making an additional payment each year.

2. Fees: Some mortgage companies charge a fee for enrolling in a biweekly payment plan. Be sure to read the fine print before committing to any additional costs that could diminish your savings.

3. Discipline Required: If you opt to self-manage your biweekly payments, you must be disciplined about making that extra payment. Missing or skipping payments can hinder your savings goals.

How to Set Up Biweekly Payments

Here’s how you can start making biweekly payments:

• Ask Your Lender: First, check if your lender offers a biweekly payment plan. Many lenders are willing to set this up for you, but it’s essential to understand any potential fees or conditions.

• Do It Yourself: If your lender doesn’t offer a formal plan or charges fees, you can still make biweekly payments manually. Divide your monthly payment by two and make that payment every two weeks. At the end of the year, you’ll have made 26 half-payments, which equals 13 full payments.

• Use Automatic Transfers: If managing biweekly payments on your own sounds complicated, consider setting up automatic transfers with your bank. This way, you won’t miss any payments, and you’ll steadily work toward paying off your loan faster.

Is Biweekly Payment Right for You?

Biweekly mortgage payments can be an excellent tool for many homeowners, but they aren’t for everyone. If you have high-interest debt or limited cash flow, funneling extra money into your mortgage may not be the best use of your resources. It’s crucial to consider your overall financial situation and other priorities before committing to a biweekly plan.

If you’re considering this approach, consult with a financial advisor or your mortgage lender to ensure it aligns with your goals.

Final Thoughts

Switching to biweekly mortgage payments is a simple yet effective way to save on interest and pay off your home loan faster. While it may seem like a small change, the long-term benefits can add up significantly. By paying down your mortgage early, you can enjoy financial freedom sooner and redirect those funds toward other investments or savings.