Bi-weekly Mortgage Payments
Your Personal Finance Management Plan

Making bi-weekly mortgage payments, instead of the much more common monthly payments, can slash literally tens of thousands of dollars on interest expense off a homeowner's debt.

If you continued to make these payments from the beginning of the 30-year term of a typical home mortgage you'd shave over five years off the loan term. Considering this type of mortgage payment plan should be part of any good personal finance management program that is designed with debt reduction in mind.

A Typical Mortgage

When a mortgage lender loans you money to buy a home they expect to be repaid at a certain interest rate over a predetermined time at preset intervals. Typically you'd agree to make a fixed payment every month for the life of the loan.

To determine how much of that payment is interest and how much will go toward reducing your principal the lender will generate an amortization schedule. At the beginning of any long-term loan like a mortgage you still owe all the principle so the vast majority of your payment actually goes to pay interest charges.

If you looked at this same loan toward the end of its term you'd see the vast majority of the payment is going toward principle reduction, which is because you owe very little so the interest charge is small.

Why make Bi-weekly Mortgage Payments?

Because interest on a mortgage loan is calculated daily, if you make half your payment two weeks early and the second half at the end of the month you slowly chip away at the principle a tad faster. You also attack the debt more quickly because you'll be making an extra payment each year.

On a monthly loan you of course make 12 payments while on a bi-weekly schedule you'd make 26 payments. Let's see how that actually works.

As an example I'll use a $150,000 30-year mortgage with a 6% interest rate. After five years of monthly payments your principle balance would be just under $140,000, however, if you had made bi-weekly mortgage payments on the same loan your principle balance would be down to about $134,000. That is a $6,000 savings.

Continuing forward in time with the same loan, after 10 years of making monthly payments you'd be down to $125,500 and using bi-weekly $112,800, nearly a $13,000 difference.

At the end of year 24 using bi-weekly mortgage payments the loan would be paid off, while monthly mortgage payers would still owe over $50,000. That is a huge difference in time all for the small sacrifice of making an extra payment per year.

Getting Started with Bi-Weekly Payments

Before you initiate a bi-weekly payment plan you'll need to contact your lender and make sure they will develop an appropriate payment and amortization schedule for you to follow. Normally in a biweekly plan your payment is exactly half of what you’d pay on a per month plan.