The power of a bi-weekly mortgage payment

A mortgage may be the largest financial commitment many people will make in a lifetime. It’s a  loan that may run hundreds of thousands of dollars that most people commit to paying off monthly over an extended period of time. These periods can vary.

That’s a big commitment to drag around for what could be a huge portion of your life.

Some people are able to find room in their budgets to pay off a mortgage faster by making extra payments or even cutting the loan term down by half. But even if you don’t have extra money to put toward your mortgage each month, a simple trick could potentially cut down the amount you pay and trim years off of your repayment period.

Here’s how to save money and pay off your mortgage faster by making a bi-weekly mortgage payment.

How a Bi-Weekly Mortgage Payment Works

Just like it sounds, a bi-weekly mortgage payment is a payment you send to your mortgage lender every other week, instead of just once on each monthly due date. You could pay half of the monthly payment amount, so you pay the same amount each month but break it into two payments. However, before you start to make any changes to your mortgage payments schedule, review the terms of your loan and speak with your lender to understand the actual implications of making bi-weekly payments on your loan.

If you receive a bi-weekly paycheck, one way to do this is to set up an automatic payment to your lender that immediately follows each pay day.

Here’s an example, using our bi-weekly vs. monthly mortgage payment calculator¹ to get an estimate.

1. Say you input into the calculator a loan balance of $175,000 with a 6.9% monthly and bi-weekly fixed interest rate on a 30-year mortgage.
2. The calculator estimates the monthly payment with principal and interest is $1,152.55. With the aforementioned monthly mortgage payment, you’d pay $239,918 in total interest and spend 360 months (30 years) repaying the mortgage.
3. It also calculates that if you make a bi-weekly payment of $576.28, you’ll pay $179,972 in total interest and pay the mortgage off in 283 months (which is 23 years and 7 months). That’s $59,945 savings and 77 months (which is 6 years and 5 months less in repayment!

In many mortgage agreements, the mortgage payments are set at a monthly amount with one due date each month. Those payments include both principal (the amount you borrowed) and interest (the additional cost that accrues on the unpaid loan balance).

Interest accrues at the annual percentage rate (APR), but it may compound as often as daily. So when you sign up for a mortgage with a certain interest rate, you may be agreeing to pay back much more than you initially thought. That interest rate may accrue daily, weekly or monthly on the existing balance, which includes any interest that’s been added to it (that’s called “compounding interest”). If you have a variable-rate mortgage (as opposed to a fixed-rate), that interest rate may also change periodically. It is important that you read and understand the fine print in your mortgage prior to signing. 

Pay Down Your Mortgage Faster

When you make a bi-weekly mortgage payment, the goal is to chip away at your mortgage balance a little faster. Instead of letting your balance sit until the end of the month and making one payment, you pay off a little mid-month, then a little more at the end of the month. Based on your lender and mortgage terms, this may reduce the balance that’ll accrue interest, and hopefully save you 10s of thousands of dollars in interest over the long life of a mortgage.

If you’re paying in line with a bi-weekly paycheck for an entire year, this method will result in you making 26 payments each year. That’s making a full extra mortgage payment every year! Except you don’t have to scrounge up the money at the end of the year; you just fit it naturally into your paycheck cycle.

Wondering how much faster you could pay off your mortgage by making a bi-weekly payment? Use our bi-weekly vs. monthly mortgage payment calculator to see what you could save.