Did you know that, in 2024, Americans carry more than $12 trillion in mortgage debt? The average balance is almost $242,00. But, in some cities, typically with a higher cost of living, it’s over $1 million.
Long story short: if you can pay your mortgage down quicker and more efficiently, you may be in a better position than plenty of your peers.
One potential way to fast-track a $0 balance? Bi-weekly mortgage payments.
Millions of borrowers use this simple trick to save money, build equity, and even profit if it comes time to sell. But bi-weekly payments may not be for everyone.
Let’s take a closer look at the definition, function, and potential pros, and cons of bi-weekly mortgage payments.
First things first, what are bi-weekly mortgage payments?
Bi-weekly mortgage payments: Home loan payments you submit every two weeks.
With standard loan payments, you submit a payment once per month. With bi-weekly mortgage payments, you take your total loan amount, split it in half, and submit that amount every two weeks.
Let’s run some numbers: Say you owe $1,000 each month for your mortgage loan.
There are 12 months in a year. With monthly mortgage payments, you’ll pay $1,000 every month for those 12 months. At the end of the year, you will have paid $12,000.
There are also 52 weeks in a year. With bi-weekly mortgage payments, you’ll pay $500 every other week for 52 weeks. At the end of the year, you will have paid $13,000. That’s because bi-weekly means every two weeks, not twice a month. When you pay every two weeks, you’ll make 26 half payments each year, which translates to 13 full payments. That’s one additional full payment you’ll make every year.
Bi-weekly mortgage payments can save you money because they can drive down both your principal and interest amounts.
Principal: The original sum of money borrowed in a loan. Basically, the amount your mortgage loan was “for”.
Let’s say you take out a $100,000 home loan. That means your principal amount is $100,000.
Interest: The cost you pay for the privilege of borrowing money. Each month, interest accrues as a percentage of your remaining principal amount, and you’re responsible for paying it.
When you pay extra on your mortgage loan, as you would with bi-weekly mortgage payments, you pay down the principal that much faster. When the principal amount shrinks faster, the interest amount does, too.
Home equity: The difference between the value of your home and the remaining loan amount. Basically, the portion of the home you “own.”
Home equity increases as the amount of loan balance remaining becomes a smaller and smaller percentage of the home’s value . Remember: when you choose bi-weekly mortgage payments, your loan amount will go down faster. That means you’ll build home equity faster, too.
Eventually, you might decide to sell your home.
If you can pay down your loan faster, say with bi-weekly mortgage payments, you’ll owe less when it comes time to sell. That may mean more profit in your pocket if the value of your home has stayed steady or increased over that time.
Unfortunately, that extra mortgage payment doesn’t just appear out of thin air. Even though it can save you money in the long term, bi-weekly mortgage payments will cost you more money now.
If you have higher-interest non-mortgage debt or other more pressing line items in the budget, it might not make sense or even be possible to spend extra on the mortgage loan.
Consider confirming whether you can afford the extra cost before you commit.
Some lenders penalize borrowers who don’t follow their standard repayment schedule. It’s not common, but it is possible.
You’ll want to double-check your loan documents before starting up bi-weekly mortgage payments. You’re looking for any information related to prepayment fees or penalties.
It might also be a good idea to contact your mortgage lender or loan servicer directly. You can confirm that bi-weekly mortgage payments are okay, ask any questions, and maybe even get their answers in writing.
Bi-weekly mortgage payments have the potential to help you save money, build equity even faster, and maybe even turn a profit when it comes time to sell. But your lender or servicer will need to sign off, and bi-weekly payments may need to fit comfortably into your budget.
A home finance professional can help you determine the right payment plan for you and your financial situation, whether that’s once a month or every two weeks. Happy borrowing!