Monthly vs. Bi-Weekly Mortgage

The typical 30-year home loan or mortgage consists of 12 monthly payments to the mortgage lender a year for a total of 360 months. A bi-weekly mortgage, on the other hand, has you making payments every 2 weeks for a total of 26 payments a year. Each bi-weekly mortgage payment is about half of what you’d pay on a monthly basis, so you end up paying the equivalent of 13 full monthly payments at the end of the year.

Why would you want to do this? There are a couple reasons.

For one, it’s the convenience factor. Many homeowners are paid bi-weekly, so it only makes sense to also make payments on your mortgage bi-weekly. Bi-weekly mortgage payment programs are often setup via direct deposit so that the money is zapped out of your account on a regular basis without you having to lift a finger. For some, it may make budgeting month-to-month easier.

Secondly, a bi-weekly mortgage could save you money. Because you’ll be making the equivalent of one extra monthly payment a year towards the principal of your mortgage, you’ll end up paying off your mortgage about 4 to 6 years earlier. The sooner you pay off a mortgage, the less interest you’ll pay. How much you’ll save depends on the size of your mortgage and your interest rate.

However, there are some drawbacks to a bi-weekly mortgage. Like all services that appeal to conveniences, it comes with a price. Lenders may charge you upfront fees to set up a bi-weekly mortgage payment, since it means more clerical work for them. Also, beware of how the payment system works—often times, although you are making roughly two payments each month, they’ll only apply it to your account once a month. So it’s like you’re giving them an interest-free loan for half a month each time while your mortgage still accrues interest.

Third-party servicers may also offer bi-weekly mortgage payment plans. These companies act as a middleman between you and your mortgage lender, collecting your bi-weekly mortgage payments and then sending them along to your lender for you. Most arrangements like these are costly and pointless and can even be a liability—if the third-party middleman folds, you may miss a mortgage payment. And you better believe that it’ll be your fault.

Another consideration is whether your mortgage lender even allows partial or early mortgage payments. Some lenders will outright refuse to do a bi-weekly mortgage payment. Others may levy a fee for each early payment you make towards your principal. Call and ask before you start sending them extra money.

Also, it’s important to remember that you can enjoy the cost benefits of a bi-weekly mortgage payment plan by simply paying a little extra towards your mortgage each year on your own. You can do so by sending one extra monthly payment a year or adding a certain amount to your monthly mortgage payment. At any rate, you should make sure you specify that the extra payment goes towards your principal and ensure that your lender accepts extra payments.

Bi-weekly mortgages are essentially a structured way to save money by paying off your mortgage early. When considering whether bi-weekly mortgage payment plans are right for you, weigh out the pros and cons of building equity vs. keeping cash on hand—and remember to factor in those fees, if they exist.