Paying Your Mortgage Bi-Weekly
A biweekly payment schedule is actually a formal method of mortgage prepayment. With a biweekly schedule, you make a payment on your mortgage every two weeks. Each payment is roughly equal to one-half of your normal monthly payment. If you maintain the schedule, you'll make an extra month's payment over the course of each year (26 half payments equal 13 full payments). You'll also pay less interest because your payments are applied to your principal balance more frequently.
For example, let's assume you have an 8 percent, 30-year mortgage of $300,000. Your normal monthly payment is $2,201 (rounded to whole dollars). Over the 30-year term, you'll pay about $492,466 in total interest. But if you arrange a biweekly payment schedule for this mortgage, with a biweekly payment amount of $1,100, you'd pay off the mortgage in approximately 23 years and save about $138,186 in total interest charges.
If you want to make biweekly mortgage payments, talk to your lender. Also, be sure to use our bi-weekly mortgage calculator to test your savings. The best time to do this is when you take out the mortgage. Find out if you will be charged a fee for this service, and ask if there's a penalty for dropping out of the program prematurely. You may at some point discover that you can't afford the extra payment or can't stick to the biweekly schedule.
Keep in mind that lender processing errors are more likely to occur with a biweekly payment schedule, since the lender receives twice as many payments on your mortgage. Moreover, given that the biweekly payment schedule may not always synchronize with your monthly mortgage due dates, your chances of making a late payment (and thus incurring a late fee and possibly blemishing your credit history) also increase with this alternative.
Caution: Be cautious of biweekly payment plans set up by someone other than your lender (e.g., third-party arrangements).
By making your regular monthly mortgage payments and adding extra funds to each payment, you may achieve the same result on your own as you can with a biweekly payment schedule.