Take a look at how changing your mortgage payment plan could save you thousands of dollars and impact your monthly budget.

Buying a house is the single biggest expense in your lifetime. It is a proud moment when you become a homeowner for the first time, but it is also a big responsibility. While your mortgage payments will likely have the biggest effect on your budget and your credit rating, they can also offer you the largest opportunity to save money when you accelerate paying off your mortgage.

Why Pay Off Your Mortgage Faster?

Housing generally accounts for approximately 30% of your total income, and most mortgages are for a 30-year term. That is a lot of your budget tied up for a long time. Paying your mortgage off faster could free up space in your budget for anything from home renovations to your kid’s college tuition and save you thousands of dollars in the end.

Paying off your mortgage faster also helps you build equity in your home. Equity is the value of your home minus the amount you owe on your mortgage. You can borrow on your home equity at lower interest rates than personal loans or credit cards. The faster you pay off your mortgage, the more equity you have.

The Benefit of Biweekly Mortgage Payments

To pay off your mortgage faster, consider making biweekly mortgage payments. There is an anomaly in our calendar that makes biweekly payments a possible benefit to homeowners. You may be familiar with this with respect to your paycheck. If you get paid every two weeks, there are two months in the year when you will get three paychecks. Aside from saving you money and attaining more equity sooner, making biweekly mortgage payments can make sense if you earn biweekly paychecks. An adjusted payment schedule may better align with your monthly cash flow.

By paying half of your mortgage payment every two weeks instead of paying the full amount once a month, you can easily get ahead on your mortgage payments. When you pay monthly, you make 12 payments a year. If you make half of your monthly payment every two weeks, you end up making 26 half-payments in a year. That is equivalent to 13 full payments. In addition to saving you money and allowing you to accrue equity more quickly, making biweekly mortgage payments may better align with your monthly cash flow.

What Could Go Wrong?

While it is rare, there are some mortgage programs that charge a penalty for prepayment. You will want to include the amount of the penalty when doing your math to be sure biweekly payments would actually save you money. You may also face some charges for setting up a biweekly mortgage payment plan. You should check with your lender to see what your options are and what it would cost, and then figure those costs in.

Although it doesn’t look like a lot of money, you will be paying a little more each month on your mortgage. That is money you won’t have left over for other expenses throughout the month. It is a good idea to look at your budget and determine if this could be a problem for you. Saving money at the end of your mortgage is not a benefit if it means you don’t have enough money to cover your regular living expenses now.

Pros and Cons of Biweekly Mortgage Payments

The faster you pay off your mortgage, the more equity you have. You can borrow against your home equity at lower interest rates than personal or credit card loans.

Pros

• Build equity in your home faster
• Save money in interest charges
• Pay off your mortgage faster

Cons

• Possibly pay a fee for a biweekly payment plan
• Take more money out of your monthly budget
• A possible prepayment penalty

How to Set Up Biweekly Payments

The first thing you need to do if you want to pay your mortgage biweekly instead of monthly is to contact your lender. Find out if they offer a biweekly option and if there are any fees or penalties associated with such a payment plan. Some lenders require you to be approved for different payment plans.

If your lender does not offer a biweekly payment plan or won’t acknowledge half-payments every two weeks, you can still benefit from this idea. Simply overpay your monthly mortgage charge by the same amount you would add if you made biweekly payments. If your annual extra payment would be $1,200, then divide that by 12 to get your monthly extra payment. By adding $100 to each monthly mortgage payment, you will reap the same savings benefits as you would by paying your mortgage every two weeks.

Don’t Have a New Mortgage? That’s Okay.

You don’t have to be a first-time homebuyer to take advantage of the savings of paying your mortgage biweekly. Even if you are several years into your mortgage, you can still make the switch and save. Be sure to contact your lender before you make this change so there are no misunderstandings. If you have built up sufficient equity in your home, you may want to refinance your mortgage and begin making biweekly payments on the new loan. Contact your financial institution to learn about your options.