You may already know that biweekly payments can go a long way toward helping you to pay off your mortgage faster, but do you understand how they work? Let’s take a moment to walk through the theory behind this money-saving procedure and how you can put it to work for you.

How Biweekly Payments Are Calculated
Grab your mortgage statement and take a look at the amount of your monthly minimum payment. This is the ‘amortized’ payment, which was calculated by the bank to pay back a bit of your balance and a lot of their interest.

This figure is also the least possible amount you need to pay in order to make your mortgage stretch out for the longest possible period of time. If you pay only this minimum amount once a month, then your mortgage balance will be fully repaid at the very end of the full loan term.

However, it’s possiblee to re-calculate this payment so that the numbers work a bit more in your favor, rather than making such a large contribution to the bank’s profits.

With a standard monthly mortgage payment, if you pay $1,000 on your loan each month, then at the end of the year you’ll have paid exactly $12,000. Simple, right?

But let’s take that mortgage and apply a biweekly payment calculation…

For the same mortgage, with a monthly payment of $1,000, you’ll divide this by two to arrive at a biweekly figure of $500. This means you’re going to pay half your mortgage payment on the same day of the week, every other week.

It is very important to distinguish between biweekly payments (every two weeks, every 14 days, or every fortnight) and twice-monthly (for example, on the 1st and 15th of each month). In order for this system to work in your favor, you must make sure that you are making your payments biweekly.

How Do Biweekly Payments Reduce Your Mortgage?
Well, when you make your new biweekly mortgage payment on the same day every second week, then by the end of the year you would have made 26 payments instead of 24. This puts you two entire payments ahead each and every year.

What Else Can Biweekly Mortgage Payments Do For You?
In addition to being ahead on your mortgage payments, thus shortening the length of your loan, biweekly payments will also reduce the total amount of interest you will pay. When banks calculate your interest charges, they work out how much interest you owe them based on your mortgage’s balance at midnight EVERY day. Then they add these daily figures together to present you with your interest charge at the end of the month.

By paying biweekly, your balance is actually reduced every 14 days. This in turn reduces the amount of interest the bank will charge you at the end of the month.

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