Biweekly Mortgage Payments Can Save Thousands – For Free

Making one small change to how you pay your mortgage can shave years off your home payments, help you build equity faster and save you tens of thousands of dollars in interest.

The change is to start making half of your regular mortgage payment every two weeks, adding up to one extra mortgage payment every year. This approach is flexible and you can stop or start at any time plus – best of all – it’s completely free.

How biweekly mortgage payments work

There’s no magic here, just math. By making half of a full mortgage payment every other week, you’ll end up making one full extra payment each year. For ten months per year, you’ll make two payments per month; but in the other two months, you’ll make a third payment. And those extra payments will reduce your mortgage principal. That, in turn, will lead to a smaller loan balance and less interest. The result: More of your future mortgage payments will go toward paying down your loan principal instead of interest.

What it looks like in practice

Over a few years, these savings add up. And you can see that clearly by contrasting the lifetime costs of a bi-weekly payment with a traditional one payment-per-month model over the course of a 30-year loan. We’ll use the average mortgage balance ($244,498) and interest rate (7.3%) from 2023 for this exercise:

When you pay your mortgage once per month

Monthly payment ………………………….$1,677.87
Total annual payment ………………………. $20,134
Loan term ……………………………………30 years
Total interest paid …………………………. $359,535

When you pay half your mortgage every other week

Biweekly payment ……………………………$838.93
Total annual payment ……………………….$21,812
Loan term ……………………………………24 years
Total interest paid ………………………….$264,025

Amazing, right? The every other week model saves you almost $100,000 in interest over the life of the mortgage. And you pay the whole thing off way faster. Six years faster! The bottom line: Make half the payment every other week and you’ll wind up paying less interest and building equity faster.

An important note: Some lenders may charge a penalty for early payments. You’ll want to explore the terms and conditions of your mortgage before you make a change. If there’s no penalty, you should be able to set up an automatic payment schedule on your mortgage servicer’s app or website or via your bank’s bill-paying service. Make sure to designate that the additional payments go toward the loan principal – not your escrow fund.

Some Downsides – and How to Get Around Them

The biggest drawback here is the most obvious one: Using the example above, the homeowner pays a total of $2,517 two months of the year – a relative increase of $839 more in each of those months. This may be less of an issue for people who get paid every other week. But those who receive a paycheck twice per month, or on some other irregular schedule, could feel the pinch. So here’s an alternative option: Increase your monthly payment by one-twelfth. That will result in making one extra payment throughout the year.

Another risk is that pre-paying a mortgage means tying up some extra cash in the value of your home, which is illiquid, meaning much harder to tap if you need it. Accessing that money in an emergency will require taking out a loan or line of credit against your home equity. One way to avoid that is to save one-twelfth of a regular mortgage payment in a separate account each month, and then make a 13th payment at the end of the year. (The SoFi checking account Vault feature is well-suited for this use.) That preserves access to that cash if you end up needing it for something else.

A Few Other Considerations

Before starting accelerated payments, consider whether there’s a better use for that extra cash. If you’ve got debt with a high interest rate, such as a credit card balance, it’s better to pay that off before a mortgage with a lower interest rate. You’ll also want to consider whether the extra money should go into building, or expanding, a safety net or emergency fund, or toward retirement savings or home maintenance.

Finally, consider how long you’ll likely remain in your home. Relatively few homeowners stay in their houses through the end of their mortgage term – the average tenure runs about 10 years, according to the National Association of Realtors®. If you fall into that category, paying extra toward your mortgage may not be worth the effort. You might be better off saving to pay the movers.

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