Should You Enroll in Biweekly Mortgage Payments?

There is a lot to be said for paying off your mortgage a little bit early. One way you can do that is by enrolling to have your mortgage payment deducted from your bank account on a biweekly (every two weeks) basis, rather than on a monthly schedule. Some mortgage lenders and servicers are contacting borrowers to encourage them to switch to this plan. While it seems like a good idea, you need to be careful. There are advantages to paying your mortgage biweekly, but your lender’s plan may not be the best plan for you.

Should You Enroll in Biweekly Mortgage Payments?

Advantages to a Biweekly Payment

First of all, there are advantages to a biweekly payment. Lenders simply take your current mortgage bill and halve it. Then, every two weeks, the money is debited from your account. You make 26 payments a year. This means that by the time the year is over, you have actually made the equivalent of one extra mortgage payment. Your extra payment can knock a few years off your mortgage term, resulting in you having the mortgage paid off earlier, and savings in interest charges.

While it sounds like it could be a good idea, think twice: There are some items to consider before enrolling in your lender’s biweekly mortgage payment plan.

Think Twice Before Signing Up for a Biweekly Mortgage Payment

Before you commit to your lender’s biweekly mortgage payment program, find out how the mortgage works and whether or not there are fees associated with your enrollment. A biweekly payment means that the lender loses out on some of the money it would have received if you fulfilled the original mortgage terms. To make up for this, some lenders charge a monthly plan fee or an upfront enrollment fee. Another thing to be wary of is a prepayment penalty. Double check your mortgage; if a prepayment penalty is involved, enrolling in a biweekly plan could be counterproductive.

If there is an enrollment fee for the plan, and you can get around it (in some cases) with a little smart math. Take your monthly payment and divide it by 12 — for instance, if you have a monthly mortgage payment of $1,200, you will divide it by 12 to get $100. That is how much you need to pay extra each month to equal the extra amount you would be paying in a biweekly plan. Just add that amount to your monthly mortgage payment, and there is no need to enroll in a special plan.

Other Ways to Use the Money

You should also consider other uses for the extra money you’ll be putting toward your mortgage if you sign up for biweekly payments. If you still have other debt with higher interest rates, it might be in your best interest to pay that down first. Any savings you get from making a biweekly mortgage payment could be negated by the higher interest you are paying on credit cards. You might be better off putting that extra mortgage payment toward debt reduction.

Another consideration is to build an emergency fund. If you already have an emergency fund in place, then consider how that money could be working harder for you. In some cases, you might decide it would be better to put that extra mortgage payment amount in your retirement account. There is a chance that you will see better returns on that money, offsetting the interest you might have saved with biweekly mortgage payments and an early mortgage payoff.

In the end, it’s about figuring out the best use for your money. Consider your financial goals and what you are willing to risk. You should only enroll in a biweekly mortgage payment plan if it makes sense in your situation.