I signed up for biweekly autopay because I heard that like if you pay half every two weeks, then you actually end up paying 1 extra full payment per year and that would help a lot in paying off your mortgage long-term.
Even when I sign-up for it on my mortgage website, it says "Pay X every 2 weeks" and "Pay off faster and save on interest"
But after doing it for ~2 months, I was just exploring the website some more and I noticed under 'Details' for my current month payment that it says:
Partial payments are considered "unapplied" until we receive the full amount due to cover your monthly mortgage. Any amount you pay above the monthly amount due will be applied to principal.
Does that mean I'm not really saving any money since they will just put it in unapplied limbo? Or this is still saving money because it will go to the principal?
Am I saving money by using biweekly autopay for my mortgage?
byu/prommetheus inpersonalfinance
Posted by prommetheus
10 Comments
Biweekly is 26 half payments a year, or 13 payments. Vs 12 monthly.
It’s the same as if once a year you just made an extra payment towards principal.
Until you accrue the extra full payment, it doesn’t give any benefit.
Sounds like they are just holding your funds.
Ask explicitly: When I make a biweekly payment, is it applied to my loan immediately, or held as unapplied funds until a full monthly payment is reached?
This simply means that any overpayment for one month will not then be applicable to next month’s payment. The last sentence says that any extra will be applied to the principal, which is the amount you actually owe not accounting for interest.
For example, say you have a monthly payment of $1000. This month, you pay $1050, so a $50 overpayment. Next month your payment is still $1000. You can’t say “hey I paid you guys $50 extra last month, I wanna pay $950 this month”.
The most significant effect is the 13 payments vs 12 payments in a year. A very minor effect is saving a little bit of interest, due to how mortgage payment grace periods work in a US consumer mortgage.
Very important: When you start biweekly payments, you must pay 50% of a month ahead.
For example, if your bill is delinquent after May 10th, then you can’t just start paying 50% on May 1st, because the second half will be past the deadline. So, you’ll actually start with 50% on April 17th, and then the second half on May 1st, fulfilling your May bill in full.
In some calendar months, you’ll land 3 payments all within the period that credit to the same month. The 3rd payment is purely an extra principal payment applied “early” just because of the timeline. This saves you a small amount of interest.
What is your mortgage rate?
If I’m reading this right, twice a year (six months apart) you will make three autopays in a given month. The third payment will be applied as extra principal, which will indeed shorten the payoff term and save some interest.
You won’t start saving interest until the first 1.5 months payment is applied.
I pay weekly – 52 payments a year and even overpay by rounding up. The actual mortgage is €1158 per month but I pay €300 per week just to keep even amounts moving. I get an interest rebate weekly of about €20 which goes off the principle so they’re actually rewarding me by giving me that.
I’m considering paying €150 every three days next to see how it affects it.
Depends on you lender I suppose.
I did this in the first couple years of my mortgage: I looked at an amortization chart, and added up the principal paid in the first couple of years. It was not a lot. I paid that to the bank as additional principal right at the beginning.
The regular payments after that had the amount of principal interest as if I was in month 25. This knocked a couple years off the amortization, so I did it again knocking about another 18 months off.
It only took a couple of thousand dollars to do that, although I didn’t do it much after that
As others have explained it’s just a mechanism to make 13 payments instead of 12. The timing should align directly with your paychecks, the additional principal is paying down loan faster.
Personally, instead of biweekly you can just take the payment divide by 12 or any other amount add it to the monthly payments as additional principal, that will pay down the balance faster. If your mortgage is $3600 just make additional $300/mo and you get the same effect as biweekly with an even monthly budget.