Bi-weekly Mortgage Payments

Sep 12th, 2007 @ 9:11 AM by MortgageMentor

So you want to build equity faster? Did you know simply making one extra mortgage payment per year will shave approximately six years off a 30 year mortgage and save you thousands of dollars in interest payments? One of the easiest ways consumers can quickly build equity is to set up a bi-weekly mortgage payment plan.

Bi-weekly payments are when you pay your mortgage every two weeks instead of once per month. When you pay bi-weekly you are actually making an extra month’s payment by the end of the year which will save you thousands of dollars in interest over the life of the loan and shorten the amortization schedule. The way it works is that there are 52 weeks in a year, so if you were to make half a mortgage payment every two weeks you essentially make 13 mortgage payments annually instead of 12 if you just pay once per month.

If you have a $300,000 30 year fixed rate mortgage at 6.25% your monthly payment will be $1847 and you will pay $364,975 in interest over the life of the loan. If you made your payment under bi-weekly payment plan, you would pay $923.50 ($1847/2=$923.50) every two weeks and the loan would be paid off in the 24^th year saving you approximately $77,270 in interest payments.

Many banks offer to set up automatic bi-weekly payment plans where they automatically withdraw the money from your checking account. Some of the plans will require you pay a set up fee of a few hundred dollars and sometimes a maintenance fee per transaction.

While having the bank set up the bi-weekly payment can be beneficial if you don’t have a lot of discipline, you could be better off just doing it yourself to save the transaction fees.

There are two ways you can approach this. First, you can just send a full extra payment at the end of the year with your last mortgage payment marked to be applied towards principal. However, if you have a problem coming up with a large lump sum, all you have to do is divide your currently monthly payment by 12. In the example above, $1847/12 equals $153.91. Therefore, if you send $2000.91 ($1847 + $153.91) each month by the end of the year you will have made one extra payment and well on your way to paying off your mortgage early!

3 Responses to “Bi-weekly Mortgage Payments”

1. Tom says:

   September 13, 2007 at 8:43 am

   Isn’t it better to send in an additiona 1/12th towards principal every month, that would result in more savings since your principal will be paid down more each month compared to saving up yourself and making one full principal only payment at the end of the year?
2. Russ Martin says:

   September 13, 2007 at 2:45 pm

   Tom, that’s definitely one way to look at it. There is a small financial advantage to reducing the compounding interest with those twelve, small, additional payments versus making the one additional payment toward the principle at years’ end.

   The important take-away for consumers though is that, in whatever way you do it, putting additional money towards the principle balance of your mortgage has a significant payoff in reducing the interest paid over the life of the loan and on reducing the duration of the loan’s term.
3. Don Paone says:

   September 23, 2010 at 9:46 am

   My partner and I came here simply because this particular site has been tweeted by a young lady I had been following and am happy I made it here.