Homeowners looking to cut their overall mortgage debt can get the job done by doubling the number of payments they make to their mortgage company every year.
The practice is called bi-weekly mortgage payments, a strategy where mortgage loan customers pay their mortgage loan every two weeks, instead of once a month. The idea is to chop down your mortgage payment more quickly, and in the process, lower the amount of interest you pay on your mortgage overall.
The numbers back that sentiment up. Paying your mortgage every two weeks adds one full payment each year (13 payments—based on 26 bi-weekly payments each year, versus 12 monthly payments).
Savings Add up with Bi-Weekly Payments
Consider a traditional 30-year mortgage of $200,000 with an interest rate of 6.5%. Normally, that would require the homeowner to make a monthly payment of $1,264.14. By using a bi-weekly payment plan, the homeowner would pay $632.07 every two weeks and, in doing so, cut six years of payments off of the mortgage loan and save $58,747 off the total amount of the loan. (Looking for help refinancing your mortgage? Read this.)
“A bi-weekly payment plan is far more effective than merely sending one additional payment per year,” says Michael Hausam, a realtor and mortgage broker in Newport Beach, Calif. “Your loan balance accrues interest every day and reducing that principal balance every 14 days (26 half payments per year) saves more in interest charges than one full additional payment every 12 months, even though the total amount in payments every year remains the same.”
Lisa Orban, an author, and an Illinois-based homeowner has been a regular bi-weekly mortgage payment payer since she purchased her residence and has a good reason for the strategy.
“I pay bi-weekly for a number of reasons, but the primary one is almost immediately more money is put towards the principal rather than the interest,” Orban says. “The payment on the first of the month more goes towards interest, but the payment on the 15th shifts and more money is put towards the mortgage loan principal.”
It’s important to note, however, that not all mortgage services allow bi-weekly payments. To find out where you stand, reach out to your lender and ask about your bi-weekly mortgage payment options. If they are permitted, then you lender can walk you through the process of setting up the new payment plan.
Alternatives to Bi-Weekly Mortgage Payments
Bi-weekly mortgage payments aren’t the only way to save money long-term on a home mortgage.
“I like three different scenarios,” says Elisa Meyer, a former real estate agent and personal finance specialist with At Your Pace Online, a digital-based education services provider. “Each can help you save money on your mortgage.”
- Come up with a way (whatever works for you) to set aside the money every two weeks, and then pay that money toward the mortgage each month.
- Use your year-end bonus, tax return, or other “windfall” money to make one extra payment each year.
- Take your monthly mortgage payment, divide it by 12, and add that amount to your monthly automatic payment. You’ll make an extra payment every year.
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
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4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
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