Biweekly mortgage payment

What It Means

A biweekly mortgage paymentMortgageA loan used to buy or refinance a home, secured by the home itself and repaid in monthly installments over a set term. See more plan collects half of your monthly payment every two weeks instead of the full payment once a month. A year has 52 weeks, so that's 26 half payments, the same as 13 monthly payments, one more than the usual 12. That extra paymentExtra paymentMoney paid toward a loan on top of the required payment, usually to lower the principal sooner, which cuts the interest and can shorten the loan. See more goes toward the balance each year, which is what shortens the loan. Some servicers and outside companies charge fees to run these plans, and the Consumer Financial Protection Bureau (CFPB) points out you can get the same effect by making one extra monthly payment a year yourself.

How People Say It

• "We switched to paying the mortgage every other Friday."
• "Biweekly sneaks in a thirteenth payment."
• "They wanted three hundred dollars to set it up, so I just pay extra in June."

The Breakdown

Worked example. A $250,000 mortgage at a fixed 6% over 30 years has a monthly payment of $1,498.88. Buhata's estimate, treating the plan as one extra payment applied each year:

The exact result depends on when your servicer applies the money.

What the result means. The saving comes entirely from the thirteenth payment reaching the principal. A program that charged an example $300 to enroll and $2 a debit would take $352 in the first year and $52 in each later year, so fees would eat into that saving for years. The CFPB's no-fee route is to add one extra monthly payment a year, or a twelfth of a payment each month, and ask the servicer to apply it to principal.

What to watch for

• Ask whether a program applies each half payment when it arrives or holds it until the full payment is due.
• Add up enrollment and per-debit fees for as long as you expect to keep the loan.
• Check your loan for a prepayment penaltyPrepayment penaltyA fee some lenders charge if you pay off a loan, or a large part of it, before the end of its term, most often through a sale or a refinance. See more before paying extra.

Good to Know

The Consumer Financial Protection Bureau says a servicer may charge fees for a biweekly plan, that making one extra monthly payment each year can accomplish the same thing without the fee, and that you should check your loan termsLoan termHow long you have to repay a loan, usually stated in months for a car loan and in years for a mortgage. See more for a prepayment penalty first. In 2015 the CFPB sued Nationwide Biweekly Administration, alleging that customers paid more in fees than they saved in interest for the first several years and that a typical borrower would need about nine years in the program to recoup its fees. If your pay arrives every two weeks, you can build the same habit on your own by setting aside half a payment from each paycheck and sending the thirteenth payment to principal once a year.

Related Terms and Categories

• Extra payment

  Money paid toward a loan on top of the required payment, usually to lower the principal sooner, which cuts the interest and can shorten the loan.

• Mortgage

  A loan used to buy or refinance a home, secured by the home itself and repaid in monthly installments over a set term.

• Amortization

  Paying off a loan through regular scheduled payments, each split between interest and principal, until the balance reaches zero at the end of the term.

• Prepayment penalty

  A fee some lenders charge if you pay off a loan, or a large part of it, before the end of its term, most often through a sale or a refinance.

• Pay frequency

  How often an employer pays you, usually weekly, every two weeks, twice a month or monthly, which sets how many paychecks you get in a year.

• Debt-free date

  The month your last debt is scheduled to reach a zero balance, based on the balances, interest rates and payments you plan to keep making.

Debt and credit