By default, you probably will make your mortgage payments once a month. But did you know that it is also possible to switch to a biweekly schedule where you are paying every two weeks? This schedule can help you to pay off your mortgage more quickly. In this post, we explained how it works and what you should consider before changing your mortgage payment schedule.
How Do Biweekly Payments Work?
A biweekly payment schedule is a formal recurring payment schedule you can set up with your lender. Instead of making one full payment each month, you make two half payments each month, each spaced two weeks apart.
So, imagine your monthly mortgage amount is $1,400. On a monthly schedule, you would just pay $1,400 by the due date every month. But on a biweekly schedule, you would instead pay $700, wait two weeks, and pay $700 more. You would do this every month.You can see that this would make little difference in your monthly expenses, since you are paying approximately the same amount in approximately the same amount of time.
How a Biweekly Payment Schedule Can Help You Pay Off Your Home Loan Faster
If you are paying roughly the same amount per month regardless of your payment schedule, how do biweekly payments get you ahead on your mortgage payments over time?To understand the answer, you need to think in terms of a calendar year.
If you submit your mortgage payments once a month, you are making a total of 12 mortgage payments per year, each for the same amount. So, say that your monthly payment is $1,400. Multiply that times 12, and you get $16,800. But if you are paying on your mortgage biweekly, you are making 26 payments per year, each of them for $700. Multiply $700 x 26, and you get $18,200. So, just by paying on a biweekly schedule, you have managed to pay an extra $1,400 on your mortgage that year. That is an extra full month’s worth of payments.
Now, picture doing that for the next decade. By the end of that decade, you will be $14,000 closer to paying off your home loan than you would have been otherwise.
That is pretty impressive, considering that on a day-to-day basis, you will scarcely notice any financial impact from simply shifting to a biweekly schedule.
Watch Out for Fees
Now, there is one potential disadvantage to paying on your mortgage on a biweekly schedule. There is sometimes a fee for making the jump.
Find out if a fee exists, and if so, how much it is. This will help you decide if making the change is financially worth it. There is also the matter of prepayment penalties to consider. These penalties are not nearly as common as they were in times past, but they do still sometimes apply. So, this is something that is always worth double checking before you decide to try and pay off your mortgage early.
Alternatives to a Biweekly Payment Schedule
The biweekly payment schedule is simple, easy, and can work great to get you ahead, but there are alternatives.
- Divide the amount of your monthly payment by 12, and then tack on that much extra each month. So, continuing our example, $1,400 divided by 12 = $116. Each month, add $116 onto what you are paying. But by the end of the year, you will have paid an extra $1,400.
- Another option is just to make a single lump sum extra payment of $1,400 at some point during the year.
- A third idea is to just pay extra whenever you can, in varying amounts. Over the course of the year, you can try to make it add up to $1,400. Alternatively, you can aim for a higher or lower amount that fits within your annual budget.
With all of these, you need to keep in mind that if you do not specify, your extra payments will probably go toward your interest instead of your principal. You do not want that, so make sure you tell the lender in writing with every extra payment you submit that you want that money going directly toward the principal.
Discover More Tips and Tricks for Managing Your Mortgage Payments
Whether you already have a mortgage or you will soon be applying for one, we want to help you pay off your home loan as quickly and affordably as you can.
If you give us a call, we can tell you more about the ideas in this post, and give you additional personalized recommendations for managing your mortgage payments. We can also discuss refinancing with you if that is something that interests you. To schedule a consultation, please call us now at 954-840-8811!