Switching from monthly to biweekly mortgage payments can lead to significant interest savings and a shorter loan term. Here’s how the two compare:
📊 Monthly vs. Biweekly Payments
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Monthly Payments: You make 12 full payments per year.
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Biweekly Payments: You make half of your monthly payment every two weeks, totaling 26 half-payments annually. This equates to 13 full payments per year, effectively adding one extra payment annually.
💰 Interest Savings & Loan Term Reduction
By making biweekly payments, you reduce your principal balance more quickly, which decreases the amount of interest accrued over time. For example, on a $400,000 loan with a 6.5% interest rate:
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Monthly Payments: Pay off in 30 years with approximately $510,177 in total interest.
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Biweekly Payments: Pay off in 25 years with approximately $388,860 in total interest, saving over $121,000.
🏠 Additional Benefits
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Faster Equity Build-Up: Reducing your principal faster means you build equity in your home more quickly.
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Easier Budgeting: If you’re paid biweekly, aligning your mortgage payments with your pay schedule can simplify budgeting.
⚠️ Considerations
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Lender Policies: Not all lenders accept biweekly payments or may apply them differently. Confirm with your lender that they apply each payment upon receipt and that there are no prepayment penalties.
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Third-Party Services: Some companies offer to set up biweekly payment plans for a fee. Be cautious, as these services may not provide additional benefits over setting up the plan directly with your lender.
🧮 DIY Alternatives
If your lender doesn’t offer a biweekly payment option:
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Make an Extra Payment Annually: Add one additional monthly payment per year.
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Add Extra to Monthly Payments: Divide your monthly payment by 12 and add that amount to each monthly payment.
Both methods can mimic the benefits of a biweekly payment plan.
✅ Conclusion
Biweekly mortgage payments can save you money and help you pay off your loan faster. However, it’s essential to ensure your lender supports this payment structure and that it aligns with your financial situation.