Biweekly Mortgage Payments

You’ve probably already heard the claims. That a biweekly mortgage can save you thousands of dollars. And that a biweekly mortgage can shave years off the life of your loan and help you accrue equity in your home fast.

Well, it’s true! Pardon the exclamation point. Anyways, “biweekly mortgage payments” are a sort of accelerated mortgage payoff system that allow you to make an extra monthly payment each year. The way it works is rather simple.

Instead of making a single monthly mortgage payment each month, or 12 mortgage payments a year, you make a half mortgage payment every two weeks. And because there are 52 weeks in a year, that equates to 26 half mortgage payments annually, or 13 total monthly mortgage payments.

The result is an additional mortgage payment each year, but of course it’s not that simple. Nothing ever is. You can’t simply expect the bank or mortgage lender to allow you to mail in a half payment twice a month, that simply won’t fly.

Your bank will ask you to set-up a biweekly payment system with an intermediary, which acts as a liaison between you and your lender. But biweekly payment companies can get expensive, especially when they charge a set-up fee of anywhere from $200-$500 and then an additional fee for each transaction.

So what are the benefits of a biweekly mortgage anyways?

– you can increase the amount of equity in your home at a faster rate
– you can save money by paying less interest on your mortgage
– you can reduce the term of your mortgage
– your mortgage payments are automated and made simple
– more frequent payments decrease the outstanding principal loan balance faster

So you like the benefits a biweekly mortgage affords, but it seems somewhat defeatist to pay someone to help you save money on your mortgage right? Right. That’s why there’s an alternative to do it yourself, with a “no cost biweekly mortgage” plan.

No Cost Biweekly Mortgage

Forget that fancy name. Here’s how it works. Instead of having a biweekly mortgage company handle your monthly payment, simply take your typical monthly mortgage payment, divide it by twelve, and add that to your mortgage payment each month. And then send in your increased monthly payment to the bank or lender. That’s it, you’re done.

And this free biweekly mortgage method actually works in your favor for several reasons. First, you don’t pay any extra junk fees to have someone do it for you. And second, because you make an extra payment to principal each month, your loan balance is reduced each month, reducing the total amount of interest due throughout the life of the loan. So you pay less interest in a shorter amount of time. Amazing.

[Pay off mortgage or invest?]

The only drawback to doing it yourself is the old self-discipline issue. Can you trust yourself to make the higher payment each month? Will you remember to do it? Luckily, these days you can set up automated payments within your checking account for free, so it shouldn’t be too much of a problem either way. And you have the benefit of backing out at anytime if your financial situation changes.

You don’t have to nail it down to an exact science either. You can always pay an extra $100, $200, or $300 a month if you’d like. Find a number that works for you and stick to it. Or make extra payments throughout the year based on your income fluctuations. If you’re determined to pay your mortgage off, every little bit helps.  You can even round up your payments.

You don’t need to enroll in a “mortgage acceleration program” or hire a “certified mortgage acceleration specialist” to help you figure out how to make your loan amortize more quickly. It’s really quite simple. Don’t fall for gags that require you to pay an extraneous set-up fee or a transaction fee every time you make a payment. Your goal is to pay less, not more.

And don’t confuse biweekly mortgages with “bimonthly mortgages.” A bimonthly mortgage, or semi-monthly mortgage involves no extra payments, just two half payments a month that equate to the typical 12 payments a year. In effect, the practice does very little to save money, and isn’t offered by many banks and lenders.

Avoid Partial Mortgage Payments!

One final note: Be careful not to make a “partial mortgage payment” to your mortgage lender as it could result in some unintended consequences.  At worst, the mortgage company may send your payment back if it’s not made in full.  Clearly this could result in a late fee and a possible credit ding.

In other words, making two half mortgage payments a month probably won’t work in your favor.  Mortgages are generally calculated monthly (not daily), so making a half payment early won’t result in any additional savings.  And 24 half payments is just 12 full payments, so you won’t do yourself any favors.

Assuming they do hang onto your partial payment, they may place it in a suspense account, where it will remain until enough money comes along to make at least one full mortgage payment.  So if you make another partial or full payment after sending the initial partial payment, they’ll only apply the funds if the total is enough to make one full mortgage payment.

This is why companies offer biweekly programs to avoid any misunderstanding with your lender if you send in two payments that are supposed to cover your full mortgage payment and a surplus toward principal.

When sending a payment that doesn’t correspond with your actual payment due, make sure it’s utterly clear that the additional amount will go toward principal or escrow (usually your choice).  That way there’s no confusion about why you’re paying more than the amount due.

So if you round up a payment, be sure to indicate where you want the excess to go.  If the lender/servicer’s website doesn’t make this clear, call before you pay to ensure your payments will be applied properly.

Read more: How to pay off the mortgage early.


17 Comments

  1. Tiffany April 2, 2015 at 12:52 pm -

    This information is so valuable! thank you! I have one question, though. We just purchased a condo, but we only plan to stay in it for 5 or 6 years and the longest we will keep it for is ten, depending on the resale value. Do you think this method is worth it for us? How can it benefit us as short term owners, who also would like to profit of the property as much as possible?

    Thank you!

  2. Colin Robertson April 2, 2015 at 3:04 pm -

    Tiffany,

    Making extra (or larger) payments reduces the outstanding loan balance quicker, and as that balance decreases less interest is charged over time. So when it comes time to sell, even if just after 5-10 years, the difference between the eventual sales price and the outstanding loan amount will be greater than if you just stuck to standard monthly payments.

  3. Tiffany April 3, 2015 at 3:53 pm -

    But would it be a significant amount compared to if we just saved the extra money (we’ll say $100) rather than putting it towards the mortgage? Or do you think it would be about the same?

    I’m just having trouble wrapping my head around the numbers. I will try and find a calculator online for it.

    Thank you!

  4. Colin Robertson April 4, 2015 at 12:01 am -

    Tiffany,

    An early payoff calculator will show you the benefits…and it’s really personal preference to put more or less toward the mortgage.

  5. Wade Kinlaw May 3, 2015 at 1:52 pm -

    Colin,

    Hello! Would you be able to tell me if some banks will actually amortize your biweekly payments biweekly or if they just hold on to the money and make a payment once a month. I’m assuming it would be more advantageous to the borrower if the biweekly payment can also be amortized biweekly. Do you know of any banks that offer this? I just got out of the military and I’m planning to use my VA home loan soon and would like to make good decisions as I make the investment. Thanks for your help Colin!!!

  6. Colin Robertson May 4, 2015 at 9:41 am -

    Hey Wade,

    It would be more advantageous because earlier payments would knock out interest earlier and reduce future interest expense, but I doubt any banks would apply your biweekly payments that way because traditional mortgages don’t receive any (interest) benefit from paying earlier in the month.

  7. Samuel May 11, 2015 at 2:32 pm -

    Hey Colin ,

    Just tagging onto the response you answered for Wade,

    What would you suggest in my case . If i want to pay less on interest and save ~$100k on interest for the life of my 30yr loan of $327k. should i then do biweekly payments on my own? or should i do what you suggested and just add the extra 200+ bucks on my monthly payments ?

    I guess i’m just trying to figure out how i can ” avoid ” paying the full amount on interest and pay less since i’m paying more frequently ?

  8. Colin Robertson May 12, 2015 at 11:21 am -

    Samuel,

    Just input your numbers in an early payoff calculator to see how much extra you need to pay monthly to save $100k on your particular loan. Not sure biweekly will shave that much off, might need to be an extra monthly amount.

  9. Bill May 14, 2015 at 3:11 pm -

    Great article, I just bought a house and was checking to see if I would need to setup a bi-weekly payment program or just add to my monthly payment and you pretty much answered it. So to be clear I have a mortgage total of 1100 a month, if I add roughly 95 a month to my payment I will get the same benefit as a bi-weekly payment program? Typically in bi-weekly payment programs do you pay a little more per payment, I always understood them to be your typical monthly payment split in half. thanks again

  10. Colin Robertson May 18, 2015 at 2:58 pm -

    Bill,

    A true biweekly is your regular monthly payment split in two every two weeks, aka 26 half payments, 13 full payments. Doing it yourself requires higher payments but can generate the same effect without any fees to setup a biweekly program.

  11. Bill May 21, 2015 at 11:12 am -

    ahh the bi weekly ends up 26 payments/13 months vs 12 monthly with a little extra.. comes out a wash except no bi-weekly setup fees. Thanks! You just saved me several hundred dollars!

  12. Jose June 4, 2015 at 4:05 pm -

    I”ve been considering refinancing my remaining balance of 75000, originally over 87000. The loan was for 4.75%. I am enrolled in a biweekly payment plan through WF Bank. If I choose to send extra payments each month, does it matter when I send it? Would it be preferable to send it at the beginning of the month or at the end of the month. My credit rating is excellent, above 800, and I don’t have any revolving CC debt. What would be your recommendation for my best course of action?

  13. Colin Robertson June 9, 2015 at 10:17 am -

    Jose,

    It depends when they actually apply the payments. Generally it doesn’t matter when you send in a mortgage payment because interest is calculated monthly, but if WF applies it right when they receive it, payments made earlier could save money. Might be best to give them a call and ask.

  14. stefan June 16, 2015 at 9:37 pm -

    Thanks for this info. We set up a bi-monthly payment with our mortgage company and saw this “suspense account” thing (much to our chagrin, obviously)
    Thanks to your info, we aren’t going to waste our efforts and money

  15. Jenn June 25, 2015 at 9:56 am -

    When calculating the amount for the “No Cost Biweekly Mortgage” payment, do you take the payment before escrow or including escrow?

  16. Colin Robertson June 25, 2015 at 10:23 am -

    Jenn,

    The amount that goes toward insurance/taxes should be fixed (since you can’t pay extra there) so you’d want to focus on the principal/interest portion.

  17. Nick July 21, 2015 at 2:14 pm -

    If you were to calculate the bi-weekly payment with just the principal and interest portion, you would be short on your monthly payment amount.

    Let’s say you total payment, which includes escrow, is $1000. Prinicpal and interest, for simplicity, is $800. You need to do $500 bi-weekly payments. If you only focused on the interest and principal portion, you’d be short $200.

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