Whether you've been a homeowner for 15 minutes or 15 years, paying off your mortgage faster could help you free up cash for other financial goals. Your mortgage is likely your largest single monthly expense, and each payment is due on a specific day and for a minimum amount. But switching from monthly to biweekly payments could provide substantial financial benefits.
What Is a Biweekly Mortgage Payment?
Most homeowners make 12 monthly mortgage payments a year. With a biweekly mortgage payment schedule, half the monthly payment is paid every two weeks. Since there are 52 weeks in a year, homeowners end up making 26 biweekly payments (13 full payments) every 12 months.
What Are the Advantages of Biweekly Mortgage Payments?
The interest rate and years remaining in your repayment term will determine how much you could save with biweekly mortgage payments. However, homeowners who elect to split up their payments typically:
- Build home equity faster
- Experience less financial stress
- Eliminate private mortgage insurance (PMI) payments sooner
- Save thousands of dollars in interest charges over the life of the loan
- Become debt-free faster and are able to redirect funds toward other financial goals
You might experience additional benefits, depending on the details of your mortgage loan. When making biweekly mortgage payments, you must still ensure that the entire mortgage payment is received by the due date.
Is This the Same as Bimonthly Payments?
Some homeowners confuse biweekly and bimonthly payments. Unfortunately, they only realize the difference at the end of the year. Making a half payment every two weeks is not the same as making a half-payment twice a month. If you overlook this subtle distinction, you will still pay your mortgage on time, but you'll miss out on the cost-saving benefits of a biweekly mortgage schedule.
Remember that biweekly payments result in 13 full payments each year (52 weeks/half payments every two weeks), while bimonthly payments (two half payments twice a month) result in 12 full payments a year. A biweekly mortgage schedule results in one additional full payment every year. A bimonthly payment schedule does not.
Are There Other Ways to Make Extra Payments?
Yes. You can achieve similar or even better results by adding a small amount to your regular monthly payment. For example, you can take the amount of your monthly mortgage payment, divide it by 12, and add that amount to each payment. This would add up to an extra monthly payment each year, which is exactly what a biweekly payment schedule does.
Another option is to add a specific amount of your choosing to your monthly payment. If your mortgage payment is $1,000, add an extra $100 and direct the lender to apply it to your principal balance. At the end of 12 months, that would be an additional $1,200 toward your principal balance. The extra amount would reduce a 30-year mortgage by almost five years!
If you aren't financially able to consistently add extra dollars to your monthly payment, putting found money you receive during the year toward your mortgage principal can cut the amount of interest paid over the life of the loan. Extra money could come from a variety of places including tax refunds, year-end bonuses, property tax overpayments, or unclaimed property searches.
Before you apply found money toward your mortgage balance, review your other debt obligations. It might be a better financial move to use the extra cash to pay down higher-interest rate debts like credit cards or personal loans.
Are Biweekly Mortgage Payments Right for Me?
Your financial situation will ultimately determine whether biweekly mortgage payments make sense for your household. If you believe biweekly payments are right for you, adjust your budget to ensure you have enough funds in your checking account to make both payments every two weeks as planned. A biweekly payment schedule must also allow time for the required monthly payment to be credited to your account by its due date.
Review your home loan paperwork to ensure there are no prepayment penalties associated with your mortgage. Unlike some mortgage lenders, Hanscom FCU does not charge a fee for paying off your mortgage early. Any extra payments you make will automatically be applied to the principal balance, provided that your mortgage is current.
If your mortgage loan is with another home loan lender, confirm their process for applying extra payments to the principal balance. In some instances, you may need to obtain approval from your lender before switching from monthly to biweekly payments.
Hanscom FCU members can take charge of their finances by scheduling biweekly mortgage payments via the Bill Payment tab in Online Access. Set up one-time or recurring payments at no cost. You select the payment date and amount. Need help getting started? Contact us at 800-656-4328, and we'll help you start saving money today!
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