How bi-weekly mortgage payments can save you thousands

Are bi-weekly mortgage payments right for you?

As with most payments, when you get a mortgage you are normally required to make payments on a monthly payment to the bank. Part of this payment is applied to your mortgage, HOA dues, taxes and PMI if required. Depending on the terms of your mortgage you may be paying over the course of any number of years but you will still be required to pay on a monthly basis even if your mortgage is a 15 year fixed interest rate mortgage. If you are like most people you will be looking to save as much money over the course of the loan as possible. One way to do this is with bi-weekly mortgage payments.

What bi-weekly mortgage payments isn't
Let's just be clear, with bi-weekly mortgage payments you aren't spending the same amount of money as you would with monthly payments. Some people get confused here and believe that the timing of the payments is what saves you all that money. You can achieve the same goal by making 1 extra mortgage payment each year. The bi-weekly mortgage plan is a great resource because it allows you to pay your additional mortgage payment broken into smaller pieces rather than one large payment. The timing of the payments is not saving you money, the extra money you spend is saving you money.

What bi-weekly mortgage payments are
If you start the bi-weekly mortgage payment plan every year you will effectively be paying one additional mortgage payment directly to your equity and reducing your liability. On your typical 30 year fixed rate mortgage you will save about 4 years of time on paying off the loan and, according to, on a $100,000 loan with 6.5% interest over 30 years you will save $30,329 over the course of the loan. By simply paying one extra equity payment a year your are saving a great deal of money. There is an argument to be made, with today's low interest rates, whether your money may be best spent in other places but saving all of that money is never a bad thing.

Should you make bi-weekly mortgage payments?
The numbers don't lie. Getting on this payment structure will save you money and that's a fact. There are a few questions to ask yourself.

  1. What is your interest rate? - Interest rates are one of the biggest factors in whether or not to do this. If you have a low interest rate, (anything less than 5%) you may want to check the numbers. If, over the course of the loan, you may save $50,000 but that same amount of money invested in a secure, non-risky mutual fund would make you $75,000 what is better? Each loan is different but run the numbers and be conservative on what you would make with your investments.
  2. Can you afford the extra payment? - If your answer to question #1 is that it makes more sense to do bi-weekly mortgage payments then do a deep dive into your budget and find out if you have the extra money to make the payments. If the numbers are too tight or not feasible hold off and, remember, you are still gaining equity and property value increase each year.

Bi-weekly mortgage payments can be great for the right situation. Make sure your situation is the right one before diving in. As always do some research before you jump in and ensure that you are doing what is best for you. This is just another option to save you money!