If you are looking for a way to pay off your mortgage faster and save money on interest, you may want to consider switching to a biweekly payment schedule. A biweekly payment schedule means that you make half of your monthly mortgage payment every two weeks, instead of once a month. This way, you end up making 26 half payments per year, which is equivalent to 13 full payments, instead of 12. This extra payment each year can make a big difference in reducing your loan balance and the amount of interest you pay over the life of the loan.
How Biweekly Payments Work
To illustrate how biweekly payments work, let’s use an example of a $250,000 mortgage with a 30-year term and a 4% interest rate. The table below shows the difference between making monthly payments and biweekly payments on this mortgage.
| Payment Schedule | Monthly Payment | Total Interest Paid | Payoff Date |
|---|---|---|---|
| Monthly | $1,193.54 | $179,673.77 | Jan 2054 |
| Biweekly | $596.77 | $149,866.61 | Sep 2049 |
As you can see, by making biweekly payments, you can save $29,807.16 in interest and pay off your mortgage 4 years and 4 months earlier than with monthly payments. This is because every two weeks, you are paying down your principal faster, which reduces the amount of interest that accrues on your loan.
How to Switch to Biweekly Payments
If you are interested in switching to biweekly payments, you have a few options. One option is to contact your lender and ask them if they offer a biweekly payment plan. Some lenders may charge a fee for this service, so make sure you understand the terms and conditions before you sign up. Another option is to create your own biweekly payment plan by dividing your monthly payment by two and sending that amount to your lender every two weeks. However, you need to make sure that your lender applies the extra payments to your principal, not to your next month’s payment. You also need to check your loan statement regularly to make sure that your payments are credited correctly. A third option is to use a biweekly mortgage calculator, such as this one, to figure out how much you need to pay every two weeks and how much you can save in interest. You can also use the calculator to see how adding extra payments to your biweekly schedule can help you pay off your mortgage even faster.
Benefits and Drawbacks of Biweekly Payments
Biweekly payments can be a great way to save money and time on your mortgage, but they are not for everyone. Here are some of the benefits and drawbacks of biweekly payments that you should consider before making a decision.
Benefits
- You can pay off your mortgage faster and save thousands of dollars in interest.
- You can align your payments with your paycheck cycle, which may make budgeting easier.
- You can build equity in your home faster, which can increase your net worth and borrowing power.
Drawbacks
- You may have to pay a fee to your lender to enroll in a biweekly payment plan.
- You may have to adjust your cash flow and spending habits to accommodate the higher frequency of payments.
- You may not be able to take advantage of other opportunities to invest your money or pay off other debts.
Biweekly mortgage payments can be a smart and simple way to save money and time on your mortgage. By making one extra payment per year, you can reduce your loan balance and the amount of interest you pay over the life of the loan. However, biweekly payments are not for everyone, and you should weigh the pros and cons before switching to this payment schedule. You should also consult your lender and a financial advisor to make sure that biweekly payments are suitable for your situation and goals.
Passionate about finance news and updates, I’m your go-to guide through the twists and turns of the financial world. With a knack for breaking down complex topics into bite-sized insights, I’m here to make finance accessible and exciting for you.