You may have seen offers promising to save you thousands and cut years off your mortgage if you sign up for a biweekly payment program. The idea behind them is sound; the programs themselves are often unnecessary.
How biweekly payments work
Paying half your monthly payment every two weeks adds up to 26 half-payments a year, which equals 13 full payments instead of 12. That one extra payment goes toward principal, which shortens the loan and reduces the total interest you pay.
The catch
Many of these programs are run by third parties, not your lender. Some charge a setup fee and ongoing transaction fees, and some hold your money and send it to the lender only once a month, so you do not get the benefit of paying early.
You can do it yourself, free
You can get the same result without a middleman:
- Add one-twelfth of your monthly payment as extra principal each month, or
- Make one extra principal payment each year.
Before you start, confirm with your loan servicer that your loan has no prepayment penalty and that extra funds will be applied to principal.
Is paying early right for you?
Paying down a mortgage early is a solid goal, but it is worth making sure you have an emergency fund and are not carrying higher-interest debt first. Our preferred lender can help you run the numbers.