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Monthly vs. biweekly mortgage payments

By November 3, 2021January 17th, 2022No Comments

When it comes to mortgage payment schedules, paying once a month is typically the default. After all, most bills are on a monthly schedule, and mortgage payments are usually no different. But biweekly payments are also becoming a more popular payment schedule option, and there are a few reasons why making two mortgage payments each month can be more beneficial than a conventional payment schedule. For those who receive biweekly paychecks, making biweekly mortgage payments can feel more manageable compared to a larger single payment if they are automatically debited from each paycheck.

The case for switching to biweekly payments

The majority of borrowers will make 12 payments each year when they make monthly mortgage payments. A biweekly mortgage payment, however, means you split the monthly payment into half and make two smaller payments each month. However, there are 52 weeks in a year, so this equates to 26 biweekly payments. In a way, it is like making 13 monthly payments in one year instead of 12, and that extra payment each year can make a difference in the long run.

An example of a biweekly mortgage payment schedule

Let’s say a borrower’s monthly mortgage payment is $2,400, and by making single monthly payments, they pay $28,800 in one year. Switching to every two weeks would mean paying $1,200 every two weeks instead, and because the length of each month varies, the borrower ultimately ends up making an extra payment by the end of the year. This equates to $31,200, or 13 monthly payments in total.

An additional annual payment gives borrowers the chance to pay down their principal faster, and usually without feeling much of a financial impact because the extra payment is spread out over 12 months. At first, an extra yearly payment may not appear to make much of an impact, but when you consider an extra payment each year over the course of an entire loan, it can make a noticeable difference.

Benefits of biweekly payments

One of the biggest advantages of biweekly payments is paying off your principal a bit quicker, but there are other benefits to consider, too. If you are paying private mortgage insurance (PMI) each month, biweekly payments will help you build equity faster. Once you reach 20 percent equity in your home, you’ll be eligible to request PMI removal from your mortgage payments, and biweekly payments only get you there quicker.

Additionally, overall budgeting can be easier for some borrowers opting for a biweekly schedule. Statistics show that the average monthly mortgage payment can make up a significant portion of a family’s entire budget, meaning that those single, larger monthly payments can have a bigger financial impact on a lot of families. For some borrowers, making two smaller payments can psychologically be less stressful and financially straining, and can even be easier to budget each month. Those on a biweekly paycheck schedule can also align their biweekly mortgage payments with the dates they get paid.

There is a common misconception that biweekly payments are better for your credit score compared to single monthly payments, but generally, your mortgage payment schedule is an irrelevant contributing factor. This is not necessarily a drawback to biweekly payments, but just something to keep in mind when making your decision.

Other considerations

If you do decide to make biweekly mortgage payments, you’ll want to be sure that the extra payment isn’t going toward the interest, and instead, is contributing to the mortgage principal. This is what helps to build your home equity faster, and the more equity you have, the more options you’ll have, if needed. For example, if you need to take out a home equity loan, home equity line of credit (HELOC) or cash-out refinance, you’ll have more equity to borrow from, and at a faster rate.

Different ways to save money on your mortgage

Mortgage payments go toward your overall loan’s principal and interest. The ultimate goal of biweekly mortgage payments is to pay down your loan a bit faster, but you don’t necessarily have to switch to biweekly mortgage payments to do this. Instead, consider just paying a little extra each month when you make your monthly mortgage payment and have it go toward the principal. Take your monthly mortgage amount, divide it by 12, and pay that extra amount along with your monthly mortgage payment and build equity faster in your home.

Depending on your interest rate and current mortgage rates, refinancing your loan into a mortgage with a more favorable interest rate can also be a great option for saving money on your loan.

Apply for a mortgage today

If you’re applying for a mortgage and have questions about biweekly mortgage payment options, Filo Mortgage is here to help. We are also available to help you refinance your older home loan. Contact us today for more information and to get started on the mortgage application process.