Once you’ve purchased your home and moved in, you’ll suddenly be inundated with many types of offers. Home insurance, home warranty, and more. Another you may receive will likely be an offer to change your mortgage payment from monthly to biweekly in order to pay off your loan faster. Who wouldn’t want that? Is it too good to be true? Let’s take a look at this option and how it might work.
Biweekly Mortgage Payments Explained
Instead of sending 1 full mortgage payment a month, a biweekly arrangement means you would send in half of your monthly mortgage payment every 2 weeks. This equates to making an extra full mortgage payment a year. You could pay off your loan in a shorter amount of time, as well as reduce the amount of interest you pay over the life of the loan.
It’s more common to make one monthly mortgage payment, so you might be wondering how to change your payment terms. Here are some possible options:
- Your mortgage servicer may offer a biweekly payment option
- A third party may offer a biweekly payment option on your behalf for a fee
- You could manage paying biweekly payments yourself
However, with these options, there are some things to be aware of. We’ll discuss those a little later.
What are the benefits of a biweekly mortgage payment?
When you make biweekly payments instead of monthly payments, as long as they are processed when received, you will pay down your principal faster. Here are a couple of benefits to consider regarding biweekly payments:
- Making a half payment every 2 weeks results in 13 full payments in a year rather than 12. As a result, you will reduce the principal balance on the loan, so you’ll pay less interest and pay off the loan sooner.
- Making a half payment every 2 weeks rather than the full amount each month may be easier to budget for depending on your paycheck cycle.
Biweekly mortgage payment cautions
It’s important to be cautious before proceeding with setting up bi-weekly payments.
- First, make sure you check that your mortgage servicer allows biweekly payments. If so, then you will want to confirm that they will apply one of the payments each month to the principal balance, instead of holding the payment until the other half arrives and processing the two installments as one full payment.
- Review any third party companies very carefully. It’s not uncommon for them to charge fees and sometimes hold the payments to send only the full payment to your mortgage servicer. They may also not be as careful about your loan payments reaching the servicer on time to avoid late fees.
- Don’t start making biweekly payments on your own until you check with your mortgage servicer. Make sure you won’t be charged penalties and that they will handle the payments correctly.
Other ways to pay down your mortgage faster
If making biweekly mortgage payments isn’t really an option for you, there are a couple of ways you can still pay down your mortgage sooner. Calculate the amount of one extra mortgage payment and divide by 12. Then try one of the following options:
- Set the extra amount aside in a savings account monthly then make one extra mortgage payment each year.
- Pay the extra amount each month separate from your monthly mortgage payment as an additional payment to principal. Make sure you state that the money is a principal payment rather than a credit toward an early regular payment.
Biweekly mortgage payments can be a great option for the right person and if it’s allowed by your mortgage servicer. Be sure to consider all the details before changing the way you pay your mortgage.