What would you do if you were mortgage-free? Most homeowners dream of the day that they can ditch their payment, freeing up so much space in their budget for other spending, saving, or investing. But what does it take to make that daydream a reality?
There are many different approaches to becoming mortgage-free faster. One sometimes overlooked strategy is exploring biweekly mortgage payments vs monthly to see if adjusting your payment date can fast track you to debt freedom.
To see the impact of biweekly payments, it is important to understand exactly how a mortgage payment works. Then, you can crunch the numbers to see the results of biweekly mortgage payments vs monthly.
Let’s explore to see if this option is right for you!
The Anatomy of a Mortgage Payment
Understanding the anatomy of your mortgage payment is the first step in accelerating your payoff journey. A mortgage payment has two parts–principal and interest.
The principal of a mortgage is the amount of money that you borrowed to purchase your home. The interest is what you pay the bank or lender for loaning you the money.
Interest rates can fluctuate depending on when you take out your loan. Regardless of the rate, the more money you borrow, the more money you will pay in interest.
Depending on how your mortgage is structured, you may also have property taxes, homeowners insurance, and even private mortgage insurance bundled into your mortgage payment. If you escrow your account, the lender sets a portion of your payment aside for taxes and insurance. When the bill is due, they pay it on your behalf.
Using An Amortization Schedule to Understand More
Your current mortgage bill will have a breakdown on it that indicates how much you are paying toward the principal and how much is going toward interest. Someone at the start of their mortgage payoff journey is going to pay much more toward interest than principal.
To take the guesswork out of what you are paying and when, you can check your amortization schedule. This is a table that breaks down each of your regular mortgage payments by interest and principal over the life of your loan. Using this table will help you see how you gradually pay less toward interest and more toward your principal over time.
$2,148.37 / monthly at 4% p.a.
Total Interest Payable
$323,412.78 over 30 years
Paying your mortgage off early has a ton of benefits, including saving you tens of thousands of dollars in interest. As a result, many people are interested in early payoff strategies. For some homeowners, making biweekly mortgage payments can play an important role in this early payoff.
Biweekly Mortgage Payments vs Monthly
If you are working on becoming mortgage-free, you are probably wondering how to accelerate your journey. Understanding how you currently make payments and comparing them to a different payment schedule can help you see if this strategy might work for you.
Monthly Mortgage Payments
Most people are familiar with monthly mortgage payments. Monthly payments are typically how mortgages are discussed when you are in the process of buying a home and very likely how your loan is set up.
Monthly mortgage payments make sense for a number of reasons:
- They’re the most common kind of payment.
- They align with monthly budgets.
- The payment due dates are consistent from month to month.
- It’s more similar to paying rent monthly, which can help transitioning from renting to home ownership feel more familiar and comfortable.
If there are so many advantages to monthly mortgage payments and they’re the most common kind of payment, what’s not to love? In a word: interest.
When it comes to biweekly mortgage payments vs monthly, monthly payments will cause you to pay more interest on your loan. While it might not seem significant when you compare one monthly payment to two biweekly payments when it is multiplied out over the life of a 15 or 30-year loan, that’s some serious money.
Let’s learn more about biweekly mortgage payments to see if you should make the switch.
Biweekly Mortgage Payments
Another mortgage payment option to consider is to pay half of your mortgage every two weeks. These biweekly payments might add up to the same amount as your monthly payment, but the money is distributed differently.
As a result, biweekly mortgage payments can help you reach debt freedom faster and save you money. Here’s how:
When you make a monthly payment, you pay your mortgage 12 times per year, or once a month. When you pay biweekly, you make a payment every other week. That means you make 26 payments, instead of 24. Those two extra payments shave off an entire mortgage payment without you or your budget noticing.
Biweekly Mortgage Payments vs Monthly Scenario
Let’s use some simplified math to see how this works. Imagine that you owe $2,000 a month on your mortgage. When you pay monthly, you make 12 payments of $2,000 for a yearly total of $24,000.
However, if you pay every two weeks, that means you are paying $1000 every other week. Since there are 52 weeks in a year, a biweekly payment calendar would have you making 26 payments of $1,000 for a yearly total of $26,000.
By using the calendar to your advantage, you now have a mortgage principal that is $2,000 lower to start the following year. A whole mortgage payment erased and a smaller principal to pay interest on. Win, win!
So if the math looks so good, why doesn’t everyone pay biweekly?
Biweekly Mortgage Payment Considerations
Before you hop on the biweekly bandwagon, there are some considerations that you want to make.
Not every lender allows for biweekly payments. In many cases, you have to opt to enroll in a biweekly payment program. In that instance, you may incur a fee.
Before you opt-in, you want to crunch the numbers to make sure that you come out ahead. Obviously, for biweekly payments to make sense for you, you have to ensure that your lender allows them.
You also want to note that paying biweekly won’t bump up your credit score. While it might seem like the credit bureaus should throw some brownie points your way for making additional payments, that isn’t the case. When the bureaus review your data, they use a monthly time frame.
Biweekly Mortgage Payment Alternatives
Making biweekly mortgage payments isn’t the only way to pay off your mortgage faster. In fact, if the fees are too high, you may also explore if you have the ability to make extra payments to your mortgage. While it doesn’t work the exact same way as paying biweekly, it is another strategy you might consider to pay off your mortgage faster.
You could also consider refinancing your loan to obtain a lower interest rate or doing a mortgage recast to create smaller monthly payments.
For more alternatives and inspiration, check out the steps that we used to pay off our mortgage in under 5 years!
There is no perfect pathway to debt freedom that works for everyone. But learning from the stories of those who have already paid off their mortgage early can certainly open your eyes to all of the different options you have.
Closing Thoughts on Biweekly Mortgage Payments vs Monthly
For most of us, we don’t think twice about when we make our mortgage payments. We get the bill, make a note of the due date, and pay it.
But exploring biweekly mortgage payments vs monthly might allow you to painlessly shave a whole extra payment off your mortgage each year. To see if this biweekly strategy is right for you, crunch the numbers, and make sure to watch out for any possible fees.
It's very possible that this strategy will help you pay off your mortgage early without pulling any extra month from your budget.
What do you think about biweekly mortgage payments vs monthly? What strategies are you using to pay off your mortgage?
Please let us know in the comments below.