Bi-weekly mortgage payments can save you thousands of dollars in interest. Many lenders/finance companies offer this service, but at a cost. Did you know you can do it yourself? Check with your lender first, but using the steps below, you can make bi-weekly payments.
What are Bi-Weekly Payments?
Don’t let the name scare you. You don’t pay double the mortgage payments. Instead, you pay half of your monthly payment every two weeks. For example, on a $1,000 mortgage payment, you’d pay $500 every two weeks.
It sounds like you make the same payments, so what’s the difference? It’s in the fine details. Paying $500 every two weeks equals 52 payments. That turns out to 13 monthly payments. You make one extra mortgage payment every year without too much effort. On a 30-year term, that’s thousands of dollars knocked off your principal. That turns into years knocked off the time it takes to pay off your loan.
How to Make Bi-Weekly Payments
Use the following steps to make bi-weekly payments:
- Get your total mortgage payment amount
- Divide it in half
- Make one half of the payment at the start of the month
- Make the other half two weeks later
- Continue making the same payment every two weeks
Setting up Bi-Weekly Payments With Your Lender
Some lenders offer bi-weekly payment options for free. Ask your lender about the program first. Some contract with a third-party company that does charge. It’s not worth the fee – you can do it yourself.
If your lender does offer it, you may have the advantage of automatic withdrawals. Set up the withdrawals for the start of the month and then every two weeks. Confirm with your lender that they will credit the extra payment toward the principal.
Also, ask your lender if they will credit the bi-weekly payment right away. Some lenders wait until you’ve made a full payment. If that’s the case, it won’t have the desired effect of bi-weekly payments.
Other Extra Payment Options
If bi-weekly payments don’t sound feasible, consider your other options:
- Make one extra payment every year – Take one mortgage payment and divide it by 12. Pay that extra amount with your mortgage payment each month. At the end of the year, you’ve made one extra mortgage payment. Just make sure the lender credits the ‘extra’ money toward the principal.
- Make one lump sum payment – Make one extra mortgage payment one time a year. If you receive bonuses or tax refunds, you may make one lump sum payment at any time during the year and have the same result.
- Make extra payments each month – If you can’t afford 1/12th of your mortgage payment, pay the extra you can pay. Even $50 – $100 extra makes a difference. Remember, your mortgage lasts for 15-30 years, even $50 a month means an extra $9,000 – $18,000 over the life of the loan.
Paying Your Mortgage Off Early
Any extra mortgage payments, whether bi-weekly, lump sum, or monthly knock your principal down. As you knock the principal down, you knock years off your term. Smaller payments may only knock off a couple of years, but large consistent payments can knock a significant amount of time off your term.
Less time on your term means less interest paid. You pay interest for as long as you have money outstanding. The less you owe, though, the less interest you pay. If you need a way to save money on your mortgage, this is the way to do it. You may not feel like you are doing much now, but when you pay your mortgage off early, you’ll realize the fruits of your labor.