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Biweekly mortgage payments are a good idea under the right circumstances: they can save you thousands of dollars in interest and help you pay off your mortgage faster. But under the wrong circumstances, it may accomplish nothing or even cost you money.
Here are the ins and outs of this payment strategy to help you decide whether it’s right for you.
What Is a Biweekly Mortgage Payment?
The default way to pay your mortgage is monthly, because mortgage payments are typically due once a month. If you pay biweekly, you’ll make half of your monthly principal and interest payment every two weeks instead. That’s 26 half payments a year, or the equivalent of 13 full payments a year, instead of 12.
Here’s another way to look at it. For every $100,000 you borrow at 4% for 30 years, you’ll pay an extra $477.42 toward your mortgage each year. Your monthly and annual payments would look like this:
Pros and Cons of Biweekly Mortgage Payments
Paying less interest and getting out of debt faster are enticing reasons to make biweekly mortgage payments. But your plan might not work out as well as you expect if you don’t understand how to manage the downsides.
- Pay less interest. The higher your interest rate and the more you’ve borrowed, the more you could save. If you have a $300,000 mortgage at 4% for 30 years, biweekly payments will save you $35,000 in interest payments. If you have a $200,000 mortgage at 3% for 30 years, biweekly payments will save you $14,280.
- Repay your mortgage faster. Accumulate equity faster by paying more principal and you’ll be mortgage free sooner. Using the previous examples, you’d pay off your loan in about 25.5 years and a little over 26 years, respectively.
- Smooth out your cash flow. If you get paid biweekly, you might prefer to pay your mortgage biweekly as well. You might find it easier to manage your income and expenses by matching them up this way, especially if your housing payment is your largest expense.
- Higher housing expenses. More frequent mortgage payments means less money for other things. Saving for retirement, paying off debt or even taking a vacation to visit family might be better uses of your money.
- Increased borrowing costs if you need the money later. Once you pay extra mortgage principal, you can’t just ask your lender to give it back if you’re short on …….