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High mortgage rates are a reality for homebuyers, but there are ways to ease the pinch. One is a repayment strategy called biweekly mortgage payments. With a small additional investment up front and slightly more over the course of the year, you can pay your loan off several years early and save tens of thousands of dollars in interest.
Biweekly payments are monthly mortgage payments you pay once every two weeks. Each payment equals half of your regular monthly payment amount.
The term can be confusing because the word “biweekly” can also mean two times a week. However, in the context of mortgage terminology, the phrase “biweekly payments” always refers to payments you make once every two weeks.
Biweekly mortgage payments break your monthly payment into two payments made two weeks apart. This every-14-day schedule results in an extra payment each year, so you pay off your loan faster and with less interest.
To understand how it works in more detail, it also helps to understand how interest accrues on your loan, and how lenders apply payments to borrowers’ principal and interest — a process called amortization.
Every time you make a mortgage payment, the lender applies some of it to the loan principal and some to the interest that has accrued on that principal. Your principal balance is higher at the beginning of the loan term, so it accrues more interest. As the principal balance gradually decreases, the accrued interest decreases, too, so more of your payment goes toward the principal. Whereas almost all of your payment goes toward interest in the first year, almost all of it goes toward the principal by the last year.
When you make mortgage payments every two weeks and the lender credits them every two weeks, you accelerate your amortization, or payoff, and compound the interest savings. That means you don’t simply finish paying 30 months early if you begin biweekly payments when you first buy a home and start paying a 30-year mortgage. Your loan will actually be paid off more than six years early.
Here’s how biweekly payments compare to monthly payments on a hypothetical $400,000 30-year fixed-rate mortgage with a 7% interest rate. The monthly payment for that loan would be $2,661.21, and each biweekly payment would be half that amount, or $1,330.61.
| End of Year | Principal Balance With Biweekly Payments | Principal Balance With Monthly Payments |
|---|---|---|
| 1 | $393,079.13 | $395,936.76 |
| 5 | $360,028.68 | $376,526.36 |
| 10 | $303,401.03 | $343,249.53 |
| 15 | $223,176.25 | $296,075.46 |
| 20 | $109,521.26 | $229,200.31 |
| 24 | $0 | $156,091.79 |
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In order for biweekly payments to work this way, the lender must apply the payments as you make them. Not all do, which proves disappointing to borrowers who realize too late that their biweekly payments provided little or no interest savings.
For example, PNC Bank, similar to other banks, requires borrowers to make a double payment in the month before they start paying biweekly. Then, as it collects half payments, the lender holds the first one each month in a non-interest-bearing account until the borrower pays the second half, at which time both halves are credited. In effect, you’re loaning money to the lender until you make the second half of your payment.
If your lender works the same way, you’ll be a payment ahead because of the double payment made up front, and you’ll make an extra payment each year. But you won’t reap the full benefit of the early principal payments.
PNC compensates for that by applying a half payment directly to the principal balance two times per year. Your lender might do something similar, but the only way to tell how much that helps, if at all, is to compare the amortization schedule for that payment arrangement against schedules for monthly payments and other repayment strategies.
The amount you can save depends on your loan size and when you start making biweekly payments — the earlier the better because your principal balance, and thus accrued interest, are higher in the early years of the loan.
Using the previous example of a $400,000 loan, here are the savings you could expect from biweekly payments starting at various points in the 30-year loan term. It assumes that the lender applies the payments biweekly:
| Biweekly Payments Begin | Interest Savings |
|---|---|
| At beginning of mortgage term | $137,850.57 |
| End of Year 5 | $88,262.52 |
| End of Year 10 | $51,813.02 |
| End of Year 15 | $26,703.44 |
| End of Year 20 | $10,945.25 |
| End of Year 25 | $2,612.69 |
Paying your mortgage biweekly instead of monthly has clear benefits. However, it’s important to also consider potential risks before you make changes to your loan repayment schedule.
If you’re wondering how to make biweekly mortgage payments, you’ll need to follow these steps:
Biweekly payments aren’t the only way to pay off your mortgage early, and they might not even be the best way. In addition to weighing the pros and cons of biweekly mortgage payments, you can also consider employing one or more of the following strategies:
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