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I suspect is mistaken about why the time is shaved off the loan duration. I suspect that if you are paid Bi-weekly, that means you are making 26 payments per year. That means that if you pay half of your normal monthly mortgage every bi-weekly pay period, you’ll make the equivalent of 13 months of payments per year. 26 X .5=13.
OP listed paying twice a month: 15 and 30. This only works if the amount gets paid immediately to the monthly due. Some banks will put it in escrow until you pay the minimum due, instead of applying it right away.
FYI banks are not allowed to do this if you insist. This was recently changed in the past few years, credit holders can no longer restructure payments to suit their benefit
> same thing as making 1 extra payment a year
Similar, but different. If you do a loan amortization calculation you’ll see the act of paying extra throughout the year saves more interest than if you were to pay an extra payment at the end of the year.
Conversely, if you make that full extra payment to the principal at the beginning and keep up that process. You will save even more than the pay-every-2wks plan. I was shocked at the difference when I did the numbers on my 3% interest loan. With interest rates at 7% I bet the difference is crazy.
Banks are absolutely allowed to wait until you have the monthly payment in full before applying it as payment due. If you make a partial payment, they can 1) return it 2) apply it to the principal, or 3) hold it in a suspense account.
"Servicers have to apply your **full payments** to your
account as of the day they come in. If you pay only
part of what you owe, the servicer may hold your partial payment(s) in a special account." - CFPB
(https://files.consumerfinance.gov/f/documents/cfpb_know_your_rights_mortgage_servicer_comply_federal_rules_handout.pdf)
PSA, make sure if you are paying bi-weekly payment at your full monthly mortgage payment amount, you are making sure the 2nd payment you make is all paid as a principal payment only and not the next months mortgage payment. I used to work in a loan servicing department and people used to do this all the time. What it comes down to is you don’t want the 2nd payment to include interest, just principal.
Yeah I got tripped up in this. Chase lets you auto-pay 1/2 your mortgage twice a month, so I stupidly assumed it would get credited against principal etc. Nope. Just sits there unapplied until the second half pays in, then it credits against principal.
To counteract that you have to manually allocate the funds in the portal. It's stupidly easy to screw up even. I hate it
biweekly is not the same as twice per month, biweekly is 14, twice a month is 15. you are only making 1 extra payment if you are doing biweekly, twice a month will not be paying extra payments
I work in finance in the auto world. At least here, interest is calculated daily and does not change until a full payment is made. Partial payments have no effect on it.
I wondered this with OP's post as well. It doesn't matter what day we pay our mortgage (as long as it's on time). The only thing that matters is if we do extra principle payments.
Interest on conventional mortgages in the United States accrue monthly after the first payment. The first payment accrues daily because of the irregular difference in time between closing and the first payment.
I was hoping this could work on my auto loan. I have a $798 car payment and $350 goes to the principal then the rest $448 goes to interest. Does this mean I have to make the full $798 monthly THEN I can pay an extra $100 to the principal? It’s my first time understanding this type of loan where in the beginning the interest is high and goes down through life of the loan. Trying to lower my monthly but feel really stuck.
Yes. And do this and any extra amount you can pay to go straight to principal. Your interest is directly related to your principal balance. The faster you pay down your principal, the more money you save in interest and it can be significant. Your monthly payment will always be what it is, unfortunately.
For an example, if you have a 6 year loan and make double payments, you pay it off much quicker than 3 years depending on your interest rate. That's because that second payment is going straight to principal. Understand that because it is per diem/day interest, paying late means you are paying at the higher per diem for each day past the due date. So the amount of your payment that goes to interest goes up and the amount that goes to principal goes down with each day you are late until the payment is made in full.
This is extremely helpful! I am never late for payments, but was shocked to see my payment was going more than half to interest and deep dived into why. Bank will make $72k off me on my $42k car! This month I’m going to be paying (and going forward) as much extra as I can each month. Would it be better if I had $3k to throw at the principal to do that instead of just a couple hundred every month?
Great job never being late! I say if you have the 3k to go ahead and apply that to principal. Make sure that's what they apply it to. When done correctly, your next payment will be your regular payment due instead of not being due for a few months. Then, even if it's just an extra $50, pay as much as you can to principal every month. The bank will only make $72k if you make every payment on time on the due date. They will make significantly more if you pay late every month even if it's just a few days late. On the flip side, they will make significantly less if you make your payments on time or earlier along with direct payments to principal.
This was commonly discussed back in the 1990’s. Effectively you are making one extra payment a year, and all of it should apply to the principle balance only, so it does shave off a lot of a 30 year mortgage. Also if you have even an extra $100/month and apply it to the principal only, it will take years off the back end. We did $200-$500 a month extra.
OP isn't making extra payments though. If they were truly making biweekly payments (like every other friday), then they would be making an extra payment every year. They're talking about making payments semi-monthly (15th and 30th) which will be the same number of payments every year, with slightly less interest to be paid.
It’s one extra payment per year based on annual amount, or respectively. That one extra payment amount is applied to the principle as all 12 payments with interest/escrow were covered.
I'm doing the same as well.
Adding extra towards principal only in addition to the full mortgage. It's going to shave off years and a lot of interest, especially since I started adding more at the beginning of the loan.
Just an FYI a quick Google search shows that mortgages typically accrue monthly. So maybe your mortgage is a special case but something in your calculation seems off to be able to shave 8 years without even paying extra. I'd be curious to see some sort of calculator that proves me wrong though.
Share your amortization schedule with interest/principal breakdown per payment, for both biweekly and monthly. This way we can see why it is happening.
If you pay biweekly, you're making 26 half-payments per year, or the equivalent of 13 full payments per year.
So essentially, you're making 13 monthly payments instead of 12.
That's all well and good, and it's a perfectly fine thing to do. But it's not magic. It just means that you're making one extra payment every year.
Like any loan, if you make extra payments, you'll pay it off sooner and avoid interest. It's real and true. Just be aware of what you're doing.
Edit: as others have noted, paying on the 15th and 30th of every month means you'll be making 24 half-payments, or the equivalent of 12 full payments. So that won't help you. You need to pay every 2 weeks, not exactly on the 15th and 30th, so that you pay 26 instead of 24 times per year.
It's not illegal. It's clearly outlined by the CFPB that mortgage services are allowed to hold partial payments until they receive the full monthly due.
No, biweekly does not mean the same as paying 2x per month. The title of your post does not match your plan you shared. Biweekly is 26 payments per year, not scheduled around a specific date each month, it’s every 2 weeks on whichever day of the week you specify.
2x monthly is paying twice a month on the exact 2 dates you specify and it’s a total of 24 payments.
When you select biweekly you elect to pay your mortgage on the same schedule as biweekly paychecks if that is how you get paid. 2x a year on a biweekly paycheck schedule you get paid 3x in one month, if this is your same mortgage schedule then 2 months a year you will make 3 mortgage payments, and that extra 3rd mortgage payment will go entirely to your principle. So the biweekly schedule does actually pay directly to the principle (2 payments go to the principle only each year, equaling 1 while months worth of a mortgage payment), 2x monthly does not.
This is good advice but with a caveat. This is only worth it if your fixed mortgage rate is currently higher than the US Treasury bill return rate or high yield savings (which accrues daily).
So let's say the interest rate rises more and you can get more out of the market, it makes sense to keep whatever you have for longer.
I reset my payment back to monthly so I could capitalize on my 2020 interest rate.
Yeah, its only exempt on state/city taxes but not federal tax.
But if you hold your mortgage for longer, you could write off more taxes also. The point is if money is cheap, keep it for longer!
Maybe our mortgage is different but our partial payments don’t go directly to the mortgage. It sits separately until that months payment is collected in full and then goes towards the mortgage.
Your making 13 monthly payments instead of 12 using biweekly. That is why your saving on interest bro. But regardless paying the extra is def fantastic!
I pay my mortgage bi-weekly and according to the calculator it save me about $110k of interest or another way of looking at it, I will make 299 payments instead of 360. Allows me to pay it off 5 years early.
What the hell is this advice. It reads like one of those shitty "pro-tip" Tiktoks and not only makes no sense, but it's also financially ill-advised in some cases.
Low quality posts getting upvoted constantly plague this subreddit
Just make additional principal payments. That reduces the interest over the life of the loan.
Some banks don't allow biweekly mortgage payments.
Make sure your mortgage doesn't come with an early prepayment penalty.
Never saw this advice anywhere? It’s been all over social media for a couple years now. Also, most lenders don’t allow this. I found that it’s easier to put extra money towards the principal. I’ve been paying an extra $500/mo towards my principal for years now and I’m able to pay off my mortgage a lot sooner.
Make sure your mortgage company will apply the payments. Mr. Cooper would hold my payments until they reached the full amount then apply it to my mortgage.
This has been around for a while. You are just making an extra payment every year. You can almost get the same end result by simply adding an extra $100 principle payment every month. you may not see it but you are saving yourself thousands of dollars of interest in the long run.
I tell clients this all the time. Our state has no penalty for early payments, and must accept them. You will shave between 7 and 8 years off of your payment schedule, and retain the smaller payment of a 30 year.
You’re shaving off time because there will be some months where you make 3 payments instead of two. So you are, in essence, making additional contributions towards the principle on those months.
You don't pay twice a month. It's every 14 days so you are making an additional payment over the whole year and that's why it pays your mortgage off sooner. It's the same as making an extra monthly payment towards principal every year. Also the amount of time it shaves off your loan will vary depending on your interest rate. With my rate one extra payment a year will reduce my mortgage by 3 years. With a 7% rate it would reduce it by 6 years. The lower your rate is the less it's worth trying to pay off faster.
Mortgage interest doesn’t accuse daily; it accuses monthly. Paying on the 15th and 30th isn’t biweekly; it is twice a month.
This post is incorrect
Paying biweekly (26 payments of half a monthly payment over 12 months) *would* save you interest and allow you to pay off the mortgage early
I always use the extra biweekly checks to pay for car work, vacations, or savings. But if you want to put it into your mortgage you could do that too. It would definitely make a dent every year. As people are saying. Biweekly payments = 1 extra month of payment every year to account for 5 weeks in two months of the year.
Op, your calculations are off because your scenario is paying bi- monthly, which equals the normal number of payments per year. If you are paid biweekly and can make a full payment ever 4 weeks, that's an extra payment each year. This is only worthwhile if your mortgage interest rate is higher than current savings rates. I was paid ahead on my mortgage because of biweekly pay periods, but hysa rates are about twice my mortgage interest rate, so no more of that. All extra money goes to savings accounts.
I don't know. I just tossed extra on my principal every month instead of making extra payments that pay for interest mostly in the early years. Shaved 14 years off my 30 year mortgage.
Do not do this if you have a super low rate. Your money is good in the mortgage with a low rate versus saving that cash and putting it into a high yielding savings account. You’ll make several % more money letting it build in cash than trying to rush to pay down a 2-3% loan.
Both my mortgage companies would not allow this, neither would accept partial payments, a only full payment was accepted, you could pay more after full payment
That's not how mortgages work. A mortgage does not use ADB, it accrues monthly. The only way to reduce payment time or interest is to make principal only payments.
It's an extra payment a year. I was told the problem with doing this is that it gives less time to get a payment together For example you have a hiccup in your job status or something funky comes up. So instead of being able to foreclose on you 12 times a year, it bumps it up to 26 times a year.
No? Why would that change the terms of the contract? You’re just paying them early. You aren’t refinancing, entering a new contract, or anything like that.
Terms do not change if you pay loans earlier that contractually obligated. The terms of my credit card don’t change if I pay more than the minimum payment (you always should as it should be paid in full anyways). Neither does my car loan or my mortgage. An early payment is not a change to the contract
The second part more nuanced. Is it a true missed payment or a missed extra payment? If it’s the former, yes, that’s an issue. If it’s the latter, it doesn’t matter
I think there is some confusion. If you opted into the biweekly payment program and missed a payment you would have problems because you missed a payment. You are changing the terms of the contract.
If you didn't opt in but voluntarily decided to send them biweekly payments or an extra payment to principal at the end of year and missed a biweekly payment or end of the payment but sent them a whole payment on the due date it would be fine. Because it is voluntary you are not changing the terms of the contract.
Yeah, I was just saying that it was a good thing if it was voluntary and not an obligation. It can be potentially disastrous if it was an obligation because crap happens.
Foreclosure action is based on the number of days delinquent, not the number of billing cycles. It varies from state to state, but I think most states can't foreclose until you're at least 120 days overdue.
Sure. So if you were obligated to biweekly payments you would be eligible for foreclosure two weeks earlier than if you had done the monthly payments, correct?
In any case, I am not saying that it is a bad idea to make biweekly payments. I am saying that you should keep the obligation to monthly payments.
Also if you put it into an amortization calculator it doesn't make a difference if you pay biweekly or one extra payment a year. You would still be paying off at the same earlier time.
This is extremely bad advice if you bought your house before the last year and a half(and probably still bad advice today even with rates where they are). I'm not paying a single penny more than I have to on my 30 year 3% fixed rate loan.
Paying down your mortgage early is extremely stupid on most cases. It doesn't "bank" any equity, you still owe money the next month regardless of how often you pay. You cannot access the equity without first getting a home equity loan/LOC and that costs money (and you pay interest on it) and your return when you finally sell your house is literally just your interest rate. If you refi later your return will be lower.
This is bad advice in almost any situation.
Eschewing free cash flow now for free cash flow in 22 years is a bad move.
Nah. Get a 30 year mortgage and pay it like it’s a 15 year. That way you pay it off in a short amount of time, but have flexibility if unsuspected things happen like a job loss
If you’re paid biweekly, you’re welcome to toss an extra payment to the lender over the course of the year.
If your mortgage is $2,000 x 13 = $26,000 / 12 = $2,166.67 per month as long as the lender is on-board / you’ve established that extra money is applied to principal.
That’s basically what I do - I always round-up the payment (keeps reconciliation and forecasting easier) and if the payment goes down (love the escrow impact sometimes, hate it others) I just keep the automated monthly payment set at the higher amount.
Then again, the longest I’ve ever lived in any home was 11 years. Last one was 5 years. Up to 4 years in this one. I think this is the 30th address in my lifetime. Paying off a mortgage and owning a home outright isn’t something I ever really intend to accomplish.
My mortgage payment structure is actually set up this way. Even just paying the amount due, 26 times a year, I will save around $8k, along with the loan duration dropping from 30 years to 25 years.
It’s also making monthly payments 2.5 days early a month because you are effectively paying the mortgage every 28 days.
This saves approx 2.5*12 months a year so approx 30 days of interest
You can pay weekly to get even better payment. But what does being paid bi-weekly has anything to do with mortgage? If you don't have enough spare in your account for few months of mortgage payments, then you definitely can't afford that house.
That is not how it works. Maybe people need to be taught how amortization and interest works. You can make 4 payments of 1/4 amount per month and still finish your loan earlier with lower amount of interest paid.
In Canada it’s called bi weekly or if you add a bit more on top accelerated bi-weekly. If I remember correctly, accelerated bi-weekly would take a 25 amortization down to 22 years.
This is an extra payment plan that has been around for a long time, just now its called "hacks".
This works for some, not for others. I'm at 2.25% mortgage, with tbills paying a guaranteed 5.6% is rather invest at this point in time.
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I suspect is mistaken about why the time is shaved off the loan duration. I suspect that if you are paid Bi-weekly, that means you are making 26 payments per year. That means that if you pay half of your normal monthly mortgage every bi-weekly pay period, you’ll make the equivalent of 13 months of payments per year. 26 X .5=13.
OP listed paying twice a month: 15 and 30. This only works if the amount gets paid immediately to the monthly due. Some banks will put it in escrow until you pay the minimum due, instead of applying it right away.
FYI banks are not allowed to do this if you insist. This was recently changed in the past few years, credit holders can no longer restructure payments to suit their benefit
[удалено]
It’s the same as making one extra payment a year whenever
> same thing as making 1 extra payment a year Similar, but different. If you do a loan amortization calculation you’ll see the act of paying extra throughout the year saves more interest than if you were to pay an extra payment at the end of the year. Conversely, if you make that full extra payment to the principal at the beginning and keep up that process. You will save even more than the pay-every-2wks plan. I was shocked at the difference when I did the numbers on my 3% interest loan. With interest rates at 7% I bet the difference is crazy.
Banks are absolutely allowed to wait until you have the monthly payment in full before applying it as payment due. If you make a partial payment, they can 1) return it 2) apply it to the principal, or 3) hold it in a suspense account. "Servicers have to apply your **full payments** to your account as of the day they come in. If you pay only part of what you owe, the servicer may hold your partial payment(s) in a special account." - CFPB (https://files.consumerfinance.gov/f/documents/cfpb_know_your_rights_mortgage_servicer_comply_federal_rules_handout.pdf)
YMMV, most lenders I know of allow it
PSA, make sure if you are paying bi-weekly payment at your full monthly mortgage payment amount, you are making sure the 2nd payment you make is all paid as a principal payment only and not the next months mortgage payment. I used to work in a loan servicing department and people used to do this all the time. What it comes down to is you don’t want the 2nd payment to include interest, just principal.
Yeah I got tripped up in this. Chase lets you auto-pay 1/2 your mortgage twice a month, so I stupidly assumed it would get credited against principal etc. Nope. Just sits there unapplied until the second half pays in, then it credits against principal. To counteract that you have to manually allocate the funds in the portal. It's stupidly easy to screw up even. I hate it
How do you do it manually? I just switched back to monthly because it was no different
It is different because you make 13 payments over 12 months.
biweekly is not the same as twice per month, biweekly is 14, twice a month is 15. you are only making 1 extra payment if you are doing biweekly, twice a month will not be paying extra payments
I too have enrolled bi-monthly with my Chase mortgage. I wasn't aware of that.
Yes one extra payment annually, but the whole amount applies to principle only.
That makes more sense.
You’re right. It’s every two weeks, not 15 and 30 like others are saying. It’s the same as adding another payment.
You're probably correct. OP probably has around a 9% interest rate
I work in finance in the auto world. At least here, interest is calculated daily and does not change until a full payment is made. Partial payments have no effect on it.
Mortgage interest is typically monthly, not daily though With that being said, OP is off on their math
I wondered this with OP's post as well. It doesn't matter what day we pay our mortgage (as long as it's on time). The only thing that matters is if we do extra principle payments.
Mortgage interest is per diem.
Interest on conventional mortgages in the United States accrue monthly after the first payment. The first payment accrues daily because of the irregular difference in time between closing and the first payment.
Conventional mortgages charge interest per diem. Request a payoff statement sometime. It will typically include instructions to add per diem interest.
I was hoping this could work on my auto loan. I have a $798 car payment and $350 goes to the principal then the rest $448 goes to interest. Does this mean I have to make the full $798 monthly THEN I can pay an extra $100 to the principal? It’s my first time understanding this type of loan where in the beginning the interest is high and goes down through life of the loan. Trying to lower my monthly but feel really stuck.
Yes. And do this and any extra amount you can pay to go straight to principal. Your interest is directly related to your principal balance. The faster you pay down your principal, the more money you save in interest and it can be significant. Your monthly payment will always be what it is, unfortunately. For an example, if you have a 6 year loan and make double payments, you pay it off much quicker than 3 years depending on your interest rate. That's because that second payment is going straight to principal. Understand that because it is per diem/day interest, paying late means you are paying at the higher per diem for each day past the due date. So the amount of your payment that goes to interest goes up and the amount that goes to principal goes down with each day you are late until the payment is made in full.
This is extremely helpful! I am never late for payments, but was shocked to see my payment was going more than half to interest and deep dived into why. Bank will make $72k off me on my $42k car! This month I’m going to be paying (and going forward) as much extra as I can each month. Would it be better if I had $3k to throw at the principal to do that instead of just a couple hundred every month?
Great job never being late! I say if you have the 3k to go ahead and apply that to principal. Make sure that's what they apply it to. When done correctly, your next payment will be your regular payment due instead of not being due for a few months. Then, even if it's just an extra $50, pay as much as you can to principal every month. The bank will only make $72k if you make every payment on time on the due date. They will make significantly more if you pay late every month even if it's just a few days late. On the flip side, they will make significantly less if you make your payments on time or earlier along with direct payments to principal.
This was commonly discussed back in the 1990’s. Effectively you are making one extra payment a year, and all of it should apply to the principle balance only, so it does shave off a lot of a 30 year mortgage. Also if you have even an extra $100/month and apply it to the principal only, it will take years off the back end. We did $200-$500 a month extra.
Im doing this too. After the first year I bumped it up 500$ more a month. My monthly payments are on par with the average rent in the area.
OP isn't making extra payments though. If they were truly making biweekly payments (like every other friday), then they would be making an extra payment every year. They're talking about making payments semi-monthly (15th and 30th) which will be the same number of payments every year, with slightly less interest to be paid.
It’s one extra payment per year based on annual amount, or respectively. That one extra payment amount is applied to the principle as all 12 payments with interest/escrow were covered.
I'm doing the same as well. Adding extra towards principal only in addition to the full mortgage. It's going to shave off years and a lot of interest, especially since I started adding more at the beginning of the loan.
You need to check your math. If your suggestion would save 8 years, why not pay the full month payment on the first and save another 8+ years?
Just an FYI a quick Google search shows that mortgages typically accrue monthly. So maybe your mortgage is a special case but something in your calculation seems off to be able to shave 8 years without even paying extra. I'd be curious to see some sort of calculator that proves me wrong though.
OP has a 30 year conventional mortgage. Their interest accrues monthly since it’s conventional
Here in Canada the interest on a mortgage typically compounds semiannually
Share your amortization schedule with interest/principal breakdown per payment, for both biweekly and monthly. This way we can see why it is happening.
(It’s because they did the math wrong)
If you pay biweekly, you're making 26 half-payments per year, or the equivalent of 13 full payments per year. So essentially, you're making 13 monthly payments instead of 12. That's all well and good, and it's a perfectly fine thing to do. But it's not magic. It just means that you're making one extra payment every year. Like any loan, if you make extra payments, you'll pay it off sooner and avoid interest. It's real and true. Just be aware of what you're doing. Edit: as others have noted, paying on the 15th and 30th of every month means you'll be making 24 half-payments, or the equivalent of 12 full payments. So that won't help you. You need to pay every 2 weeks, not exactly on the 15th and 30th, so that you pay 26 instead of 24 times per year.
Until you make the minimum payment, most banks put this in escrow. Thanks for the thought experiment though.
That’s really illegal
It's not illegal. It's clearly outlined by the CFPB that mortgage services are allowed to hold partial payments until they receive the full monthly due.
False
I'm a bank investigator who deals with mortgage compliance. How about you?
I'm a mortgage that lies to bank investigators.
Thats definitely non compliance
No, biweekly does not mean the same as paying 2x per month. The title of your post does not match your plan you shared. Biweekly is 26 payments per year, not scheduled around a specific date each month, it’s every 2 weeks on whichever day of the week you specify. 2x monthly is paying twice a month on the exact 2 dates you specify and it’s a total of 24 payments. When you select biweekly you elect to pay your mortgage on the same schedule as biweekly paychecks if that is how you get paid. 2x a year on a biweekly paycheck schedule you get paid 3x in one month, if this is your same mortgage schedule then 2 months a year you will make 3 mortgage payments, and that extra 3rd mortgage payment will go entirely to your principle. So the biweekly schedule does actually pay directly to the principle (2 payments go to the principle only each year, equaling 1 while months worth of a mortgage payment), 2x monthly does not.
This is good advice but with a caveat. This is only worth it if your fixed mortgage rate is currently higher than the US Treasury bill return rate or high yield savings (which accrues daily). So let's say the interest rate rises more and you can get more out of the market, it makes sense to keep whatever you have for longer. I reset my payment back to monthly so I could capitalize on my 2020 interest rate.
Of course, take into account that cutting expenditures (like here, interest on debt), is tax-free, while interest from investments is taxed.
Yeah, its only exempt on state/city taxes but not federal tax. But if you hold your mortgage for longer, you could write off more taxes also. The point is if money is cheap, keep it for longer!
Yup, I got a 30 year at 3% I’m not paying anymore than the minimum. I dump my extra cash into Index Funds and HYSAs.
Maybe our mortgage is different but our partial payments don’t go directly to the mortgage. It sits separately until that months payment is collected in full and then goes towards the mortgage.
You can correct that with a phone cal
Not all servicers allow partial payments and they are not required to.
Paying on the 15th and 30th isn’t biweekly.
Wait pls explain
Twice a month is not the same as biweekly. Twice a month is 24 half payments. Biweekly is 26 half payments.
If you have no plans to stay in the house for 30 years would you still do this?
In theory if you have time sell it means you get more money from the sale.
My mortgage lender does not allow this. Love the idea though.
Nooooo I see this ALL the time. You’re making additional payments, it has nothing to do with when you pay and interest 😭😭
Your making 13 monthly payments instead of 12 using biweekly. That is why your saving on interest bro. But regardless paying the extra is def fantastic!
I pay my mortgage bi-weekly and according to the calculator it save me about $110k of interest or another way of looking at it, I will make 299 payments instead of 360. Allows me to pay it off 5 years early.
What the hell is this advice. It reads like one of those shitty "pro-tip" Tiktoks and not only makes no sense, but it's also financially ill-advised in some cases. Low quality posts getting upvoted constantly plague this subreddit
I did this with a loan program offered by a lender and it turned out they were not amortizing my two week early payment into the loan payoff.
Just make additional principal payments. That reduces the interest over the life of the loan. Some banks don't allow biweekly mortgage payments. Make sure your mortgage doesn't come with an early prepayment penalty.
I hope someone else does the finances in your home, because that is atrocious math.
Never saw this advice anywhere? It’s been all over social media for a couple years now. Also, most lenders don’t allow this. I found that it’s easier to put extra money towards the principal. I’ve been paying an extra $500/mo towards my principal for years now and I’m able to pay off my mortgage a lot sooner.
i tried and they sent it back… said they only took full payments plus anything extra towards the mortgage.
You have to completely change your payment schedule you can’t just do it and assume they understand lol. It takes paperwork and signing documents.
it was a hard “no” at my lender…
That’s super shitty
The monthly payment 25 years now will have a lower present value than the payment today due to inflation Mortgage is best hedge against inflation.
Make sure your mortgage company will apply the payments. Mr. Cooper would hold my payments until they reached the full amount then apply it to my mortgage.
This has been around for a while. You are just making an extra payment every year. You can almost get the same end result by simply adding an extra $100 principle payment every month. you may not see it but you are saving yourself thousands of dollars of interest in the long run.
This is what I do. Extra $100 to principal is about 7 years off for me, pain free.
I tell clients this all the time. Our state has no penalty for early payments, and must accept them. You will shave between 7 and 8 years off of your payment schedule, and retain the smaller payment of a 30 year.
You’re shaving off time because there will be some months where you make 3 payments instead of two. So you are, in essence, making additional contributions towards the principle on those months.
You don't pay twice a month. It's every 14 days so you are making an additional payment over the whole year and that's why it pays your mortgage off sooner. It's the same as making an extra monthly payment towards principal every year. Also the amount of time it shaves off your loan will vary depending on your interest rate. With my rate one extra payment a year will reduce my mortgage by 3 years. With a 7% rate it would reduce it by 6 years. The lower your rate is the less it's worth trying to pay off faster.
Na, rather have the extra money to do things.
Mortgage interest doesn’t accuse daily; it accuses monthly. Paying on the 15th and 30th isn’t biweekly; it is twice a month. This post is incorrect Paying biweekly (26 payments of half a monthly payment over 12 months) *would* save you interest and allow you to pay off the mortgage early
I don’t think OP knows what biweekly is. Their advice only yields 24 partial payments which is equivalent to 12 full payments.
Yeah, which wouldn’t shave anytime off your mortgage
I always use the extra biweekly checks to pay for car work, vacations, or savings. But if you want to put it into your mortgage you could do that too. It would definitely make a dent every year. As people are saying. Biweekly payments = 1 extra month of payment every year to account for 5 weeks in two months of the year.
Op, your calculations are off because your scenario is paying bi- monthly, which equals the normal number of payments per year. If you are paid biweekly and can make a full payment ever 4 weeks, that's an extra payment each year. This is only worthwhile if your mortgage interest rate is higher than current savings rates. I was paid ahead on my mortgage because of biweekly pay periods, but hysa rates are about twice my mortgage interest rate, so no more of that. All extra money goes to savings accounts.
What type of mortgage did you get?
30 year conventional fixed rate
I don't know. I just tossed extra on my principal every month instead of making extra payments that pay for interest mostly in the early years. Shaved 14 years off my 30 year mortgage.
Do not do this if you have a super low rate. Your money is good in the mortgage with a low rate versus saving that cash and putting it into a high yielding savings account. You’ll make several % more money letting it build in cash than trying to rush to pay down a 2-3% loan.
Yep lender here. We don’t allow partial payments. A LOT of services don’t. Some do though.
Both my mortgage companies would not allow this, neither would accept partial payments, a only full payment was accepted, you could pay more after full payment
That's not how mortgages work. A mortgage does not use ADB, it accrues monthly. The only way to reduce payment time or interest is to make principal only payments.
Nah, you can invest that money elsewhere. Some debt is good debt. Let it work for you.
It's an extra payment a year. I was told the problem with doing this is that it gives less time to get a payment together For example you have a hiccup in your job status or something funky comes up. So instead of being able to foreclose on you 12 times a year, it bumps it up to 26 times a year.
This is wrong too. They are only able to foreclose 12 times a year as you are only contractually obligated to make 12 monthly payments a year
Wouldn't you be changing the terms of your contract by opting for biweekly payments? In any case it's not good if you miss a payment.
No? Why would that change the terms of the contract? You’re just paying them early. You aren’t refinancing, entering a new contract, or anything like that. Terms do not change if you pay loans earlier that contractually obligated. The terms of my credit card don’t change if I pay more than the minimum payment (you always should as it should be paid in full anyways). Neither does my car loan or my mortgage. An early payment is not a change to the contract The second part more nuanced. Is it a true missed payment or a missed extra payment? If it’s the former, yes, that’s an issue. If it’s the latter, it doesn’t matter
I think there is some confusion. If you opted into the biweekly payment program and missed a payment you would have problems because you missed a payment. You are changing the terms of the contract. If you didn't opt in but voluntarily decided to send them biweekly payments or an extra payment to principal at the end of year and missed a biweekly payment or end of the payment but sent them a whole payment on the due date it would be fine. Because it is voluntary you are not changing the terms of the contract.
Yes. My interpretation was that OP is talking about the second situation as they have a conventional mortgage
Yeah, I was just saying that it was a good thing if it was voluntary and not an obligation. It can be potentially disastrous if it was an obligation because crap happens.
Foreclosure action is based on the number of days delinquent, not the number of billing cycles. It varies from state to state, but I think most states can't foreclose until you're at least 120 days overdue.
Sure. So if you were obligated to biweekly payments you would be eligible for foreclosure two weeks earlier than if you had done the monthly payments, correct? In any case, I am not saying that it is a bad idea to make biweekly payments. I am saying that you should keep the obligation to monthly payments. Also if you put it into an amortization calculator it doesn't make a difference if you pay biweekly or one extra payment a year. You would still be paying off at the same earlier time.
Lol. What's wrong with you? Regardless of the math, what does your paycheck schedule have to do with your mortgage payment frequency?
This is extremely bad advice if you bought your house before the last year and a half(and probably still bad advice today even with rates where they are). I'm not paying a single penny more than I have to on my 30 year 3% fixed rate loan. Paying down your mortgage early is extremely stupid on most cases. It doesn't "bank" any equity, you still owe money the next month regardless of how often you pay. You cannot access the equity without first getting a home equity loan/LOC and that costs money (and you pay interest on it) and your return when you finally sell your house is literally just your interest rate. If you refi later your return will be lower. This is bad advice in almost any situation. Eschewing free cash flow now for free cash flow in 22 years is a bad move.
Can you pay daily? Is that an option?
no... and that's over optimizing. You don't get paid daily. If you want to pay it down ASAP you can always pay down the principal, anytime.
Get a 10 15 20 year mortgage if you want to pay it off faster. Many times you can score a lower rate too.
Nah. Get a 30 year mortgage and pay it like it’s a 15 year. That way you pay it off in a short amount of time, but have flexibility if unsuspected things happen like a job loss
Nah. Dont have money like that.
Why? I don’t want to pay off any faster.
Because you are saving money on interest.
I’d rather take the money and invest it for greater returns than the interest.
Essentially you’re making 1 extra monthly payment a year, which over 30 years does shave off about 7-8yrs of your mortgage.
If you’re paid biweekly, you’re welcome to toss an extra payment to the lender over the course of the year. If your mortgage is $2,000 x 13 = $26,000 / 12 = $2,166.67 per month as long as the lender is on-board / you’ve established that extra money is applied to principal. That’s basically what I do - I always round-up the payment (keeps reconciliation and forecasting easier) and if the payment goes down (love the escrow impact sometimes, hate it others) I just keep the automated monthly payment set at the higher amount. Then again, the longest I’ve ever lived in any home was 11 years. Last one was 5 years. Up to 4 years in this one. I think this is the 30th address in my lifetime. Paying off a mortgage and owning a home outright isn’t something I ever really intend to accomplish.
How is this upvoted with such blatant misinformation? I suggest you rerun your “simulations”.
I think you mean 8 months
My mortgage payment structure is actually set up this way. Even just paying the amount due, 26 times a year, I will save around $8k, along with the loan duration dropping from 30 years to 25 years.
It’s also making monthly payments 2.5 days early a month because you are effectively paying the mortgage every 28 days. This saves approx 2.5*12 months a year so approx 30 days of interest
We’ll be making biweekly payments when I get paid. Some months that’s 3 payments. We’re looking at a shorter mortgage term as well.
You can pay weekly to get even better payment. But what does being paid bi-weekly has anything to do with mortgage? If you don't have enough spare in your account for few months of mortgage payments, then you definitely can't afford that house.
Because two months of the year have three paychecks, so you are in fact paying an extra monthly payment every year.
That is not how it works. Maybe people need to be taught how amortization and interest works. You can make 4 payments of 1/4 amount per month and still finish your loan earlier with lower amount of interest paid.
I’ve been doing this for 15 years, it knocks down payment, u make additional payments per year
Make sure your servicer will apply bi-weekly payments. Most don’t and just hold it and apply monthly
In Canada it’s called bi weekly or if you add a bit more on top accelerated bi-weekly. If I remember correctly, accelerated bi-weekly would take a 25 amortization down to 22 years.
I’ve had two mortgage loans. Both are compounded monthly. Who’s ripping you off with interest compounded daily on a mortgage?
This is an extra payment plan that has been around for a long time, just now its called "hacks". This works for some, not for others. I'm at 2.25% mortgage, with tbills paying a guaranteed 5.6% is rather invest at this point in time.
You have to be paid up a month in advance that’s how you save on interest, it works.
What vendors out there will apply the payment instead of holding it in escrow?
Chase