1 Simple Mortgage Hack That Could Save You Thousands

Mortgage rates remain at elevated levels, and the amount of interest you pay on a 30-year mortgage can literally be more than you're paying for the house.

One way to potentially save money on your mortgage over the long run is to make payments biweekly instead of monthly. In this article, I'll discuss why paying biweekly could save you money, the pros and cons of doing so, and whether it might be a good idea for you.

Biweekly mortgage payments and why it could be a smart move

Here's how it works. Instead of making your mortgage payment each month, you make half of your mortgage payment every two weeks. In other words, instead of paying $2,000 on the first of every month, you could simply pay $1,000 every other week.

Here's why it works. There are 52 weeks in a year. If you make biweekly payments, you will have paid half of your mortgage payment a total of 26 times throughout the year. This means that you'll have made 13 mortgage payments in a year, instead of the usual 12. The extra payment will be applied to the principal, in its entirety.

Example of biweekly mortgage payments

Let's look at an example to illustrate this. We'll say that you just bought a home for $500,000. You put 20% down and financed the rest with a 30-year fixed-rate mortgage for $400,000 with an interest rate of 6.5%. This makes your monthly payment $2,528 for the principal and interest. For simplicity, we'll ignore taxes and insurance, although these would typically be added to your payment.

If you simply made your monthly payments as scheduled, you would make payments for 30 years, and would pay a total of $510,178 in interest.

Now, let's say that instead of sending your bank $2,528 per month, you send $1,264 every two weeks. By doing this, the following two things will happen:

• Your mortgage will be paid off in just over 24 years, so you'll own your home free and clear nearly six years sooner.
• Your total interest will be $388,861, saving you more than $120,000 in finance charges.

Drawbacks of a biweekly payment plan

To be sure, if you receive biweekly paychecks already, a biweekly payment plan could make good financial sense for you. But it's important to emphasize that you aren't saving thousands of dollars in interest and cutting your repayment time by years by simply paying the same amount of money. You're paying more.

In short, before you enroll in a biweekly mortgage payment plan, be sure that you can afford the additional payments. It could certainly work out favorably in the long run, but it's important that your budget can absorb an extra full mortgage payment each year.

It's also worth noting that if your mortgage interest rate is low, you might be better off simply making your regular monthly payments. Think of it this way -- why would you pay extra towards your mortgage that has a 3% interest rate when you could simply put that money in a high-yield savings account and get a 5% APY?

It's also worth noting that under no circumstances should you pay anyone to set up a biweekly mortgage payment plan for you. You might see solicitation letters in your mailbox offering to set up a biweekly mortgage repayment plan on your behalf, but the reality is that many mortgage lenders allow you to set this up quickly on their online portals. Even if yours doesn't, you can manually pay every two weeks. You can also set up an automatic bill pay from your checking account.

Is paying biweekly right for you?

Like most financial decisions, there's no perfect answer. If your goal is to get your home paid off quicker without much noticeable pain in the near term, paying biweekly could be right for you. Just be sure the extra payments won't hurt your budget, and that paying off your mortgage quickly makes good financial sense for you.