What Are Semi-Monthly Payments?

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Semi-monthly payments are an excellent option for long-term homeowners.
Semi-monthly payments are an excellent option for long-term homeowners. (Image: Hemera Technologies/AbleStock.com/Getty Images)

One of the easiest ways to decrease the amount of interest paid over the life of your home loan is to make semi-monthly payments. Your payment amount remains the same, but by splitting it into two payments due at intervals throughout the month, you can reduce your interest and pay your loan off years earlier.

What They Are

Semi-monthly payments are payments made twice per month on the 1st and 15th rather than once per month on your regular due date. The balance due remains unchanged; if your mortgage is $1,200 per month, you would make a payment of $600 twice each month. You always have the option to make an additional principal payment, which could add up to even more savings over the life of the loan.

How They Work

True semi-monthly payments are applied to your account immediately, reducing your balance due two weeks early. The principal decreases, thereby decreasing the amount of interest owed. During the course of one year, you will not notice a huge difference, but spread over time, the payments will result in significant savings. Beware of companies that offer biweekly payment options but apply the total paid at the end of the month; these will not actually save you any money.

Savings Potential

A homeowner with a $200,000 30-year fixed mortgage and a 7 percent interest rate can save more than $70,000 in interest expenses and pay off the loan six years early. And that's without additional payment amounts.

Payment Setup

Contact your lender, and ask about semi-monthly payments. Verify that your payment will actually be applied as soon as it's made. Ask about how much you can save by making your payments this way to ensure that your lender understands that you do not simply want a biweekly payment schedule. Your lender will provide you with the specific information needed to change your payment schedule, and you will begin receiving semi-monthly rather than monthly bills.

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