What Is a Biweekly Mortgage?
A biweekly mortgage is a mortgage with principal and interest payments due every two weeks. Instead of making 12 monthly payments, a borrower with a biweekly mortgage will be required to make 26 half-month payments.
How a Biweekly Mortgage Works
A biweekly mortgage is a simple and effective way for borrowers to decrease their interest costs and pay off their mortgages sooner. Assuming there are no additional fees or commissions associated with setting up a biweekly mortgage—as opposed to a monthly mortgage—they can be a more affordable option for borrowers.
- A biweekly mortgage is a mortgage with principal and interest payments due every two weeks.
- Instead of making 12 monthly payments, a borrower with a biweekly mortgage will be required to make 26 half-month payments.
- A biweekly mortgage is a simple and effective way for borrowers to decrease their interest costs and pay off their mortgages sooner.
Biweekly Mortgages vs. Monthly Mortgage
Mortgage payments are by default due monthly. So, in total, a borrower would make 12 payments. Making biweekly payment means paying less interest because the principal balance that interest is calculated on is lowered weeks early. Total interest paid over the life of the loan is less—and the buildup of equity is faster—because the borrower pays the loan off earlier than with a monthly payment program.
Example of a Biweekly Mortgage
For example, suppose there is a borrower who has a 30-year $250,000 mortgage financed at a 4% interest rate. The monthly payment for that loan would be $1,193.54. Over the course of the 30-year loan, the total interest paid would be $179,673.77.
Now, instead of monthly payments, if the borrower pays biweekly payments, there is the potential for hefty interest savings. Under the biweekly payment setup, biweekly payments would be $596.77, and the total interest paid for the entire life of the loan would be $150,450.40. Paying biweekly versus monthly would save the borrower $29,223.37.
Disadvantages of Biweekly Mortgages
Some disadvantages of biweekly payment programs are prepayment penalties and fees for setting up such a program. A biweekly program can also be considered an additional commitment: making monthly payments is no longer an option because biweekly payments are a requirement. For some borrowers, it can be easier to manage cash flow without the commitment of a biweekly payment obligation.
There are some strategies for borrowers who are struggling to manage their own biweekly payments. Borrowers can place the money for their extra payments in a savings account and make an extra monthly payment once a year. However, if borrowers struggle to manage their cash flows on their own, a biweekly mortgage payment plan may not be the best option for them.
It's important to keep in mind that some banks offer something that may appear like a biweekly program at the outset, but in actuality, they may hold the payment until receiving the second half. So, in fact, they do not apply the payment to the principal early.