## Does Paying Your Mortgage Biweekly Save You Money?
Making biweekly mortgage payments can potentially save you a significant amount of money on interest over the life of your loan. Here are the key benefits and considerations:
**Benefits of Paying Biweekly**
1. **Increased Payment Frequency:** By making payments every two weeks instead of monthly, you are effectively making an extra half payment each year. This increased frequency reduces the amount of interest charged on your loan.
2. **Shorter Loan Term:** The extra payments made biweekly shorten the length of your loan term. For example, a 30-year loan with biweekly payments can be paid off in approximately 25 years.
3. **Interest Savings:** The shorter loan term results in paying less interest over the life of your mortgage. According to the Mortgage Bankers Association, biweekly payments can save you anywhere from 10% to 20% in total interest paid.
**How It Works**
When you make monthly mortgage payments, you are typically paying interest on the outstanding loan balance for the previous month. However, with biweekly payments, you are making payments more frequently, which reduces the outstanding balance faster. As a result, you pay less interest in each payment cycle.
**Calculation of Savings**
To calculate the potential savings from biweekly mortgage payments, you can use the following formula:
“`
Savings = (Monthly Payment x 12) – (Biweekly Payment x 26)
“`
**Example:**
* Monthly Mortgage Payment: $1,000
* Biweekly Mortgage Payment: $500
“`
Savings = (1,000 x 12) – (500 x 26) = $4,000
“`
In this example, you would save $4,000 in interest over the life of a 30-year loan by making biweekly mortgage payments.
**Considerations**
1. **Mortgage Terms:** Not all mortgages allow for biweekly payments. Check with your lender to see if this option is available for your loan.
2. **Increased Payment Amount:** Biweekly payments require you to make larger payments more frequently. This may not be feasible for all borrowers.
3. **Compounding Interest:** While biweekly payments reduce interest charges, they do not eliminate them altogether. Interest is still compounded on the outstanding loan balance, albeit at a lower rate.
4. **Escrow Account:** If you have an escrow account for property taxes and insurance, you may need to adjust the amount deposited into the account to ensure there are sufficient funds to cover these expenses.
**Other Options to Save on Mortgage Interest**
In addition to biweekly payments, there are other ways to save money on mortgage interest:
* **Refinance:** Refinancing your mortgage to a lower interest rate can significantly reduce your monthly payments and save you money over the life of the loan.
* **Extra Payments:** Making additional principal payments on your mortgage can shorten the loan term and reduce interest charges.
* **Property Tax Assessment:** Reviewing your property tax assessment and appealing if necessary can potentially lower your tax bill and reduce your monthly mortgage payment.
**Conclusion**
Making biweekly mortgage payments can be an effective way to save money on interest and shorten the length of your loan term. However, it is important to consider your financial situation and mortgage terms carefully before committing to this option. By exploring other options for saving on mortgage interest, you can find the best solution that meets your individual needs.