Can You Really Save Money with a Bi-Weekly Mortgage?

You’ve heard the claims that a Bi-weekly Mortgage can save thousands and cut down your mortgage between 4-8 years. How do you do it?

Enticing ads have been circulating more frequently that you can “Save you thousands” of dollars on your 30 year mortgage and shave 4-8 years off your home loan? More and more ads are popping up and we’ve all heard this money saving claim. So is it true?

Yes the Bi-Weekly Mortgage Does In Fact, Save You Money

Just stay away from the companies that offer to do it for you. Nothing is free, and this is easy enough for you to handle on your own.

The Basics:

Normally, you make twelve mortgage payments a year. Since there are fifty-two weeks in a year, a biweekly mortgage equals 26 half-payments a year. The equivalent would be making thirteen mortgage payments a year instead of twelve. You can achieve this by applying that extra payment directly to the loan balance as a principal reduction. Your loan then amortizes faster, requiring fewer payments, and yep you save money.

Here’s How To Do It:

There is no need to change the loan terms so that you, the Borrower must make a payment every two weeks instead of the normal payment due once a month.

Here’s another way to do it, simplified. Divide your monthly payment by 12 and park that amount in a savings account each month. Then, send the accumulated amount to the lender as an extra payment at the end of the year. This is the same amount of extra payments you would have made in a year under a biweekly plan.

At any time, a Borrower can send in payments ahead of time, however you need to make sure your lender is aware where the funds shall be applied. Is it going to your principal balance? Your monthly payment? Usually if sending a check, you would write in the memo section “June’s Bi-Weekly Payment” or “Apply only to Principal.”

It may be easier to speak to your lender about setting these payments up online so that you always have access and records as to when you paid it, with no room for error, or losing your payment in snail mail.

Now let’s say you just paid an extra month’s payment, without noting where that payment shall be applied. You think that the extra month’s payment was going to pay down your principal. Nope, that payment is going to either be sent back to you, or applied to your next month’s payment. Solely calling customer care and hoping that phone call will suffice will not do the trick.

Those customer service reps aren’t the ones processing your payment. You have to notate it in the memo of your check in big writing.

Tip: When you speak to customer service, make sure to get the customer service representative’s name and ‘Teller ID’ number. If anything goes wrong, and your loan servicer doesn’t apply the funds appropriately even with the memo, you will need to have the Teller’s information and time you spoke to them to back up your claim that these were your intentions.

Most loans will allow for 3 months payments in advance maximum without having to specify whether you would like to apply it to principle or interest.

These lenders make all of their money off the interest over the life of the loan, and most of it is paid during the first half. Why would they want you to pay off your loan faster, that easily?

Check if There’s a Pre-Payment Penalty

Check that you won’t be charged for paying your mortgage off early. These are fees that lenders charge when borrowers pay off their loan before its term ends or before a certain period of time. Lenders may impose prepayment penalties in several different ways, such as charging 2 to 4 percent of the principal balance or a flat fee, like $3,000.

Savings of the Biweekly Mortgage

By making principal reductions using the biweekly mortgage program, your mortgage will amortize faster, saving you money. How quickly your loan pays off depends on your interest rate and when you begin making the biweekly payments.

Let’s look at this example. Say you just bought a house and have a $200,000 mortgage with a 30-year loan term, and your interest rate is 4.125% APR. Here’s what will happen if you stick to the regular monthly mortgage plan, versus opting for biweekly mortgage payments:

	Monthly Payment	Biweekly Payment
Payment amount	$775.44	$387.72
Number of payments per year	12	26
Total Paid per Year	$9,305.28	$10,080.72
Number of Years	30	25 years and 10 months
Total Interest Paid	$119,158.25	$100,077.57
Total cost	$325,158.25	$306,077.57

In this example, making biweekly payments allows you to pay off your mortgage a full four years and two months earlier, and saves you $19,080.68 to boot.

When Shouldn’t You Pay Bi-Weekly?

With Bi-Monthly payments, you aren’t paying any more, so there isn’t really anything to lose.

On the other hand, if you decide to make extra payments towards your principal on top of your regular mortgage payment, this takes away from money you may need for repairs and improvements.

Lastly, if you aren’t going to own the home for a long time, paying any extra money on top of your regular payment may not be worth it. It’s always best to use “other people’s money” in this case the lender’s, so if you are strapped for cash stick to your regular payment, or Bi-Weekly payments.

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