If you have a mortgage, you probably know that it is one of the biggest financial commitments you will ever make. You may also know that paying off your mortgage sooner can save you thousands of dollars in interest and free up your cash flow for other goals. But how can you do that without making drastic changes to your budget or lifestyle? The answer is simple: mortgage acceleration.

Mortgage acceleration is the practice of paying off your mortgage faster than required by the terms of the loan. By doing this, you reduce the amount of interest you pay over the life of the loan and shorten the time it takes to become debt-free. There are different ways to achieve mortgage acceleration, such as making extra payments, refinancing to a shorter term, or using a biweekly payment plan. In this article, we will focus on one of the most effective and easy methods of mortgage acceleration: the biweekly payment hack.

What is the Biweekly Payment Hack?

The biweekly payment hack is a simple and clever way of paying your mortgage faster without increasing your monthly payment. It works by taking advantage of the fact that there are 52 weeks in a year, which means there are 26 biweekly periods, or 13 months. By paying half of your monthly payment every two weeks, you end up making one extra monthly payment every year, which goes directly towards reducing your principal balance. This can help you save a lot of money in interest and pay off your mortgage years earlier.

To illustrate how the biweekly payment hack works, let's look at an example. Suppose you have a $200,000 mortgage with a 30-year term and a 4% interest rate. Your monthly payment is $954.83, which includes principal and interest. If you pay this amount every month for 30 years, you will end up paying a total of $343,739.01, of which $143,739.01 is interest.

Now, let's say you decide to switch to biweekly payments. Instead of paying $954.83 once a month, you pay half of that amount ($477.42) every two weeks. Because there are 52 weeks in a year, this means you will make 26 biweekly payments, which is equivalent to 13 monthly payments. By paying one extra payment a year, you will reduce your principal balance faster, which will lower your interest charges over time.

Using a [mortgage acceleration calculator](^1^), you can see that by making biweekly payments, you will pay off your mortgage in 25 years and 8 months, saving you 4 years and 4 months of payments. You will also pay a total of $288,977.40, of which $88,977.40 is interest. This means you will save $54,761.61 in interest compared to the monthly payment plan.

How to Set Up Biweekly Payments

There are two ways to set up biweekly payments: through your lender or on your own. Here are the pros and cons of each option:

Through Your Lender

Some lenders offer biweekly payment plans as a service to their customers. They will automatically deduct half of your monthly payment from your bank account every two weeks and apply it to your mortgage. This can be convenient and hassle-free, as you don't have to worry about making the payments yourself or keeping track of your balance.

However, not all lenders offer this option, and some may charge a fee for it. The fee can range from a one-time enrollment fee to a recurring transaction fee. Depending on the amount and frequency of the fee, it can eat into your savings from biweekly payments. You should also check with your lender how they apply your biweekly payments to your mortgage. Some lenders may hold your payments until the end of the month and apply them as one lump sum, which defeats the purpose of biweekly payments. You want your lender to apply your payments as soon as they receive them, so that you can benefit from the lower interest charges.

On Your Own

Another way to make biweekly payments is to do it yourself. You can set up a separate bank account for your mortgage payments and transfer half of your monthly payment to it every two weeks. Then, you can either make a manual payment to your lender every month using the funds in that account, or set up an automatic payment from that account to your lender. This way, you have more control over your payments and avoid any fees from your lender.

However, this option requires more discipline and organization on your part. You have to make sure you have enough money in your account to cover your payments and avoid any overdraft fees. You also have to monitor your mortgage balance and adjust your payments accordingly. For example, if your mortgage has an escrow account for taxes and insurance, your monthly payment may change over time. You have to update your biweekly payment amount to match your new monthly payment.

Pros and Cons of Biweekly Payments

Biweekly payments are not for everyone. They have some advantages and disadvantages that you should consider before making the switch. Here are some of the pros and cons of biweekly payments:

Pros

- You can save thousands of dollars in interest and pay off your mortgage faster.
- You can build equity in your home faster, which can increase your net worth and borrowing power.
- You can align your payments with your biweekly paycheck, which can make budgeting easier.
- You can reduce your debt-to-income ratio, which can improve your credit score and help you qualify for better loan terms in the future.

Cons

- You have to pay more frequently, which can strain your cash flow and limit your flexibility.
- You may have to pay a fee to your lender or set up a separate account to make biweekly payments.
- You may not get the same tax benefits from paying less interest, depending on your tax situation.
- You may miss out on other investment opportunities that could yield higher returns than paying off your mortgage faster.

Frequently Asked Questions

Here are some common questions and answers about biweekly payments:

Q: Can I make biweekly payments on any type of mortgage?

A: Yes, you can make biweekly payments on any type of mortgage, such as fixed-rate, adjustable-rate, FHA, VA, USDA, or jumbo loans. However, some types of mortgages may have prepayment penalties or restrictions that could affect your savings from biweekly payments. You should check with your lender before making any changes to your payment plan.

Q: Can I switch back to monthly payments if I change my mind?

A: Yes, you can switch back to monthly payments if you find biweekly payments too difficult or inconvenient. However, you may have to pay a fee to your lender or cancel your automatic payment from your separate account. You should also be aware that switching back to monthly payments will reverse the benefits of biweekly payments, such as paying less interest and paying off your mortgage faster.

Conclusion

Biweekly payments are a simple and effective way to save money on your mortgage and pay it off sooner. By paying half of your monthly payment every two weeks, you can make one extra payment a year, which can reduce your interest charges and your mortgage term significantly. However, biweekly payments are not for everyone. They have some drawbacks, such as higher frequency of payments, potential fees from your lender, and opportunity costs. You should weigh the pros and cons of biweekly payments and decide if they are right for you.