Should you overpay or refinance a bi-weekly mortgage?

By Michael Jensen, Mortgage and Finance Guru

Edited by Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Updated October 20, 2020

The short answer to your question is that you may be able to both. If you can lower your mortgage rate and bi-weekly payment by refinancing you can also overpay your new loan by continuing to make the same payment.

This approach enables you to lower your total interest expense and shorten the length of your mortgage more than if you only do one or the other. Combining overpaying with refinancing enables you to pay off your mortgage faster while saving you money in the long run.

There are several points to consider before you apply this strategy. First, refinancing only makes financial sense if you can reduce your interest rate. This is a relatively obvious point but it is important to highlight.

Second, if possible, when you refinance your new loan term should match the duration of your current mortgage. For example, if you have 20 years remaining on your current loan, then refinance into a new mortgage as opposed to a 30 year mortgage.

Use ourBI-WEEKLY MORTGAGE REFINANCE CALCULATORto determine if you should refinance your loan

While the monthly payment is higher on a shorter mortgage -- because you are paying the loan off over a shorter period of time -- the mortgage rate should be lower than the comparable rate on a longer mortgage.

Additionally, if you maintain your current loan balance, this helps to offset an increase in your payment when you select a shorter mortgage. Simply put, if your outstanding mortgage balance is $135,000, your new loan amount when you refinance should be the same, if feasible.

The table below shows refinance mortgage rates and fees for lenders in your area. We recommend that you shop multiple lenders to find the best loan terms.

If you can lower your mortgage rate, maintain your loan term and and keep your loan amount the same, then it likely makes sense to move forward the refinance. In this case, overpaying your bi-weekly mortgage is simply a matter of making the same payment or potentially increasing your payment to overpay your loan by even more.

For example, if your current bi-weekly payment before you refinance is $1,200 and your new payment after refinancing is $1,000, you continue to make the same payment and the extra $200 is applied to reduce your principal mortgage balance. You could also pay more or less than your old payment, depending on your financial situation and other factors.

The more you overpay, the faster you pay off your mortgage and the lower your interest cost over the life of your loan. The good news is that you already pay off a bi-weekly mortgage faster than a monthly loan but overpaying enables you to shave even more time and payments off of your mortgage.

Use ourBI-WEEKLY MORTGAGE ACCELERATION CALCULATORto determine your savings from overpaying your loan

There are a couple of final points to keep in mind. First, you should never pay a third party or service to overpay your mortgage.

Simply add the amount of the extra payment to your check or send a separate payment to your lender. We recommend that you follow-up with your lender to confirm that the extra payment is applied to your principal mortgage balance. Please note that you can usually start (and stop) overpaying your mortgage at any point and by any amount.

Finally, even if you do not refinance your bi-weekly mortgage, you can still benefit from overpaying your loan. Although combining overpaying with refinancing maximizes your savings, you can always shorten your loan term and reduce your interest cost by paying more than the required payment.