A question that our financial planning firm encounters regularly is whether it’s beneficial to pay down a mortgage faster. This typically leads to a reply of “It depends,” as several factors must be considered before providing a concrete answer.

Paying off a mortgage faster can save you countless thousands of dollars in interest payments over the life of your loan. The most popular method is to set up a biweekly mortgage payment plan. This entails making half of your mortgage payment every two weeks, which effectively leads to an extra payment each year. While this strategy clearly has its benefits, the question is whether it is the most efficient one.

How Biweekly Mortgage Payments Work

As mentioned, a biweekly mortgage requires making half-payments every two weeks versus one monthly payment. Since there are 52 weeks in a year, this results in 26 biweekly payments, which equates to 13 full monthly payments instead of the standard 12. This additional payment can significantly reduce the amount of interest paid over the life of the mortgage and significantly reduce the mortgage duration.

Pros of Biweekly Mortgage Payments

There are a few main benefits of making biweekly payments:

Faster Loan Repayment: Making biweekly payments can potentially lead to paying off your home as much as six to eight years faster. Biweekly payments align better with most employees, who are paid in the same interval.
Equity: Making an additional payment means you will build equity at a slightly quicker pace. This can be beneficial when refinancing or selling in the future.
Reduced Interest: The faster the principal is paid down, the less interest paid overall. The principal balance and interest rate play a HUGE factor—more on that below.

The last bullet point above can provide the largest potential benefit. It mainly comes down to the mortgage balance and interest rate. Let’s take a look at two examples below:

Example 1: John and Sandi purchased a $375,000 condo in 2020 with a 30-year fixed-rate mortgage of 2.5%.

In this example, the amount saved in interest would be $20,065.72 ($138,347.49 vs. $158,413.21). This isn’t a game-changing amount, especially when factoring in inflation.

If John and Sandi invested the difference between the monthly and biweekly payment over 30 years compounding at 7%, they would end up with ~$151,000. Even when factoring ~20% in taxes, they end up with ~$120,800, far more than the ~$20,065.72.

Thankfully, investors have been able to earn between 4.25% and 5.5% on CDs, high-yield savings accounts, and U.S. Treasury bills since the start of 2023. While this interest would be taxed on an annual basis, it is still far above the 2.5% fixed rate. Even though I don’t expect rates to remain this elevated for much longer, they should remain attractive for the foreseeable future.

In the end, both outcomes would be good for John and Sandi, but given the extremely low fixed mortgage rate, they are better off investing this money. In addition, they would also increase their liquid assets, which can be easily tapped if needed. With that being said, investing has, of course, an element of risk that needs to be taken into account.

Example 2: Paul and Stacy purchased a $600,000 home in 2024 with a 30-year fixed-rate mortgage of 7%.

In this scenario, the amount saved in total interest would be significantly larger, coming to ~$213,301 ($623,752.39 vs. $837,053.39), given the higher mortgage balance and interest rate.

Now, if Paul and Stacy invested the difference over 30 years compounding at 7%, they would end up with ~$378,000. Even when factoring ~20% in taxes, they end up with ~$302,400. While more than $213,301, it’s not by a wide margin over 30 years. If they earned 6% instead, they would only end up ahead ~$40,000 (after taxes) and have to deal with market volatility and the risk that future tax rates could increase.

For those who desire more flexibility, you can choose to make additional payments when desired. If you receive a tax refund or bonus, you can apply that toward the mortgage. Now, this requires some discipline as it is far more fun to spend than save. :)

Cons of Biweekly Mortgage Payments

Honestly, this strategy doesn’t have a lot of negatives. Making biweekly payments will always lead to saving some amount of interest over the life of the mortgage. The choice boils down to comfort level and the opportunity cost of investing the difference. Here are a few things to keep in mind before proceeding:

Fees: Although rare, some lenders charge fees to enroll in a biweekly payment program. It is best to confirm this with your lender before proceeding.
Prepayment Penalties: This is also rare, but some lenders will charge fees if the loan is paid off ahead of schedule. It is important to confirm with your lender before proceeding.
Cash Flow: Committing to biweekly payments reduces your disposable income. It is important to make sure that this won’t hurt your monthly budget and other financial goals.
Time: If you don’t plan on staying in your home for the long term, the net benefit from biweekly payments will be less significant.

Bottom line

As expected, there is no cut-and-dry answer, as you have many pros and cons to consider. In addition, some of this decision can be psychological.

While making biweekly mortgage payments can help pay off your home loan faster, you generally can make more by investing the difference. In the end, it often comes down to personal preference since some prefer having a paid-off mortgage in retirement. It makes them more comfortable and reduces stress. This needs to be accounted for and is hard to place a tangible dollar value benefit.

Discuss your situation with a fee-only financial advisor.