The goal of every homeowner with a mortgage is to pay it down as fast as possible because it’s probably the largest debt you’ll have in your lifetime. But if you add in other debts such as credit cards or student loans, you’ve got a lot to tackle financially. Switching to biweekly mortgage payments may be an option you should consider to cut years off your mortgage – yes, years! Let’s take a look at biweekly mortgage payment basics so you can make an informed decision.
What is a biweekly mortgage payment?
Simply put, instead of making 12 monthly mortgage payments, which is standard across the industry, you opt to make a half month’s payment every two weeks. This adaptation adds an extra month’s payment annually which can help to “pay off your mortgage early by six to eight years,” according to Rocket Mortgage® by Quicken Loans.
How does a biweekly mortgage payment work?
Instead of making 12 full payments throughout the year, biweekly mortgage payments result in 13 payments annually. So rather than trying to refinance to lower your mortgage interest rate, you’ll be tackling your mortgage by paying it down early while paying less interest and reducing your principal balance at an accelerated rate.
Here’s an example from Rocket Mortgage®:
- let’s say there’s a home with a $200,000 mortgage, a 30-year fixed term, and a 20% deposit ($40,000)
- the lender calculates your monthly mortgage payment at $764, which includes the principal and interest
- if you make monthly payments, you’ll have paid $274,991 on your mortgage
- if you switch to biweekly payments, you’ll have paid $256,288 on your mortgage, resulting in a significant interest savings of $18,703 (this requires biweekly payments of $382 every two weeks)
- the lender calculates your monthly mortgage payment at $764, which includes the principal and interest
Want to see what you can save? Check out the Rocket Mortgage® calculator to establish how much house you’re able to afford and if a switch to biweekly payments may make sense for you.
What’s the catch with biweekly mortgage payments?
Some lenders don’t offer a biweekly mortgage payment option. Other lenders may charge transaction or setup fees for biweekly payments, including many third-party services. Experts also advise some of these same vendors may just continue to make monthly payments instead, which throws the entire biweekly benefit out the window so you’ll need to ask questions upfront. You could also choose to make one extra mortgage payment on your own but you’ll need to check with your lender to see if there are any prepayment penalties applicable before doing so.
Increase your home’s equity with a biweekly mortgage.
By paying down your mortgage faster, you’re also building equity in your home and once you’ve achieved a level of 20%, you can get rid of the required private mortgage insurance (PMI), which results in even more savings overall.
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