In paying off your mortgage loan, the frequency of payments may be equally important as the amount paid. The debate on whether to pay your mortgage on a Bi-Weekly or Monthly basis comes into play here.
But is the math correct? Let’s break down how paying off the loan more frequently can remove years from the loan
1. The Core Difference: 12 vs. 13 Payments
Lots of people believe that bi-weekly means you are actually "paying twice a month.". That is not correct.
- Monthly Payments: 12 payments yearly.
- Twice-a-Month: 24 payments per year (12 months x 2).
- Bi-Weekly Payments: 26 payments yearly (52 weeks divided by 2).
Because there are 52 weeks in a year, there are 26 half-payments in a bi-weekly plan. Adding all these up, you're actually paying 13 full monthly payments in a year. Therefore, going for bi-weekly payments will make you pay one more full payment for your mortgage every year without having to cash out a large amount of money.
2. The Interest Savings Breakdown
By contributing that 13th payment every year, you are reducing the principal balance quicker. The interest rate applied to your outstanding balance means that if you owe less, you're going to pay less in interest each month
Real-World Example:
Imagine a $400,000 mortgage at a 7% interest rate for 30 years:
| Feature | Monthly Schedule | Bi-Weekly Schedule |
|---|---|---|
| Monthly Payment (P&I) | $2,661 | $1,330 (every 2 weeks) |
| Total Interest Paid | $558,036 | $439,212 |
| Total Savings | $0 | $118,824 |
| Time to Pay Off | 30 Years | 24 Years & 2 Months |
The Result: You save nearly $119,000 and pay off your home nearly 6 years earlier just by changing the frequency.
3. Pros and Cons of Bi-Weekly Payments
The Pros:
- "Set It and Forget It" Savings: It automates an extra payment per year.
- Aligns with Paychecks: If you get paid every two weeks, this schedule matches your cash flow perfectly.
- Massive Long-Term Savings: As shown above, the interest savings are six-figure life-changers.
The Cons:
- Lender Restrictions: Some lenders charge a "setup fee" or "convenience fee" for bi-weekly processing.
- Tight Budgeting: In the two months of the year where there are three bi-weekly payments, your budget might feel a bit tighter.
4. How to "DIY" a Bi-Weekly Payment
If your lender doesn't support bi-weekly payments or charges a fee, you can achieve the exact same result manually:
- Take your monthly Principal & Interest payment.
- Divide it by 12.
- Add that amount as an "Extra Principal Payment" every month.
Example: If your payment is $1,200, add $100 extra each month. By the end of the year, you've paid $1,200 extra—exactly one full payment.
5. Summary: Should You Switch?
Switching to a bi-weekly schedule is a "no-brainer" for those who want to build home equity faster without significantly altering their lifestyle. However, always prioritize high-interest debt (like credit cards) before accelerating your mortgage.
