Will biweekly mortgage payments save me money?
Q: I refinanced two years ago and received an offer to pay biweekly instead of monthly. Will this help to reduce my mortgage more so than with monthly payments? If so, how/where can I apply? Is there a calculator available on your site to compare?
A: Making biweekly payments on your mortgage will absolutely cut your interest cost and shorten the term of your loan, to boot. Usually done though an auto-debit arrangement from an account you specify, the mortgage lender will sweep though that account every two weeks and collect exactly half of your required monthly payment.
How does it work?
While there are only 12 months per year, there are actually 26 two-week periods. This means you are essentially making 13 monthly payments per year. In today's market, and if started from the first monthly payment, this reduces the term of a 30-year loan to about 25 years, saving you a bundle in interest costs.
How much are the savings?
On a $200,000 mortgage at 5 percent, you'll cut the total term by just about five years, while shaving off over $34,000 in interest cost.
Biweekly payments can be valuable, but there's no magic to them. In fact, if you are both responsible and dedicated, you can simply send in an extra monthly payment once per year and achieve nearly the same savings. The biweekly plan just makes it happen automatically.
That said, you should check the fine print. While it's OK for a lender or firm to charge you a one-time set up fee, watch out for any recurring transaction fees which can diminish your savings over time.
To compare regular payments versus biweekly payments, use our mortgage calculator to see how you can save money with biweekly mortgage (or other) prepayments. Or, if you have a specific pay-off date in mind, be sure to try our It’s My Term Prepayment Calculator.
More help from HSH.com
HSH.com on the latest move by the Federal ReserveThe Federal Reserve concluded a meeting today with a quarter-point change in the federal funds rate, but no changes to other monetary policy tools.
10 metros where a home costs about $1,000/monthHSH.com identifies 10 metro areas where you can afford the principal, interest, taxes and insurance payments on a median-priced home for only around $1,000 per month.
Home price recovery index: Which metros have improved the most, least?Have home prices in your area fully recovered from the declines suffered during the Great Recession, or are they still struggling to make it back to the peak it reached before the crisis?
The salary you must earn to buy a home in 27 metrosHere’s how much salary you would need to earn in order to afford the median-priced home in your metro area.
Can I separate tax and insurance payments from my mortgage payment?It may or may not be possible for you to take on the responsibility