Interest Savings

• Your mortgage payment includes principal expenses as well as the cost of interest. The principal amount of your loan is the amount you finance. When you repay the loan, you pay back the amount you finance along with interest. A majority of the overall savings you receive by paying every two weeks on your home loan come from interest savings. When you make payments every other week instead of monthly, your mortgage principal decreases at a faster rate, which results in interest savings. For example, if you have a 30-year fixed mortgage with a principal loan balance of $125,000 and a 6.5 percent interest rate, you will pay approximately $121,519.05 over the life of the loan making biweekly payments versus $159,430.61 making monthly payments.
  
  

Mortgage Insurance

• Private mortgage insurance protects the mortgage company in case you default on your loan and the mortgage company cannot recover the loss after foreclosure. Homeowners who do not make a down payment of 20 percent or more must typically purchase mortgage insurance. Once you have at least 20 percent equity in your home, you are no longer required to maintain private mortgage insurance. Paying your mortgage every two weeks will not only accelerate the building of equity, it also will enable you to eliminate the mortgage insurance expense sooner. Insurance rates vary by the type of mortgage. Assuming a 0.8 percent monthly insurance premium for a $125,000 mortgage, you can save $83.33 per month once you build equity and eliminate the mortgage insurance requirement.
  
  

Payment Process

• Some mortgage companies do not allow partial payments, so you must contact the company to ensure your biweekly payments will be accepted. Also, ensure the lender applies each payment at the time it is received rather than waiting for the second payment to credit your account. If the mortgage company will allow you to make payments every two weeks, divide your monthly payment in half and send the payment every two weeks.
  
  

Considerations

• Your lender may have a biweekly payment program that allows you to automatically deduct your mortgage payment from your bank account paycheck. The biweekly program will eliminate the inconvenience of writing a check and mailing a payment every two weeks. Also, some mortgages have a prepayment penalty, which will charge you a fee if you pay off your loan early. In most cases, the prepayment penalty provision typically extends five years from when you obtain the loan. If you pay off the mortgage after the penalty provision ends, the fee does not apply.