Bi-weekly Mortgage Payments or Pay extra each month

Bi-weekly mortgage payments seem to be all the rage, promising the hope of paying off your mortgage early. While it will do that, I was wondering wouldn’t it be better to divide your payment by twelve and just pay that little extra in principle every time you make your monthly payment? Well in this article we will explore each method so you can decide for yourself which would be better.

First what is a Bi-Weekly Mortgage Payment?

A bi-weekly mortgage payment is when you pay half of your mortgage payment every other week. Since there is 52 weeks in a year you will make 26 half mortgage payments a year. This means you will make 13 whole payments a year, essentially making one extra mortgage payment a year.

For my example going forward I will use a $200,000 mortgage for this experiment. Looking at the charts below, if you have a $200,000 mortgage at a 4% interest rate over 30 years, your payment will be $954.83 a month. Over 30 years you will have paid an extra $143,739.01 in interest, making your total payment $343,739.01. Keep in mind the $954.83 payment does not include taxes, insurance or private mortgage insurance. But if you are on the bi-weekly mortgage plan, your payments will be $477.42 every two weeks. This makes your total interest payment $120,360.32 over 25 years, 11 months and a total payment of $320,360.32.

$200,000 mortgage @ 4% interest based on 30 years

	Payment	Total Interest	Total Payment	Years
Monthly	$954.83	$143,738.80	$343,738.80	30 years
Bi-Weekly	$477.42	$120,360.32	$320,360.32	25 yrs 11 months

Now I wanted to know if there would be a difference in interest paid and years if you just divided the monthly payment over 12 months and just added that amount to the monthly payment. The chart below shows my results. If you take the monthly payment of $954.83 and divided by 12 months, you get $79.57. Now if you add the $79.57 in principle to your $954.83 payment every month means you are now paying $1034.40 a month.

	Payment	Total + $79.57	Total Interest	Total Payment	Years
Monthly	$954.83	$1034.40	$121,473.38	$321,473.38	25 yrs 11 months

Although doing biweekly payments would save you $1,113.06 in interest, in comparison to paying the extra $79.57 in principle per month, it still pays off in 25 years and 11 months.  For me I like making a payment monthly. Since I keep an excel spread sheet to track my spending and keep a budget, I feel like I have more flexibility in my spending by making my mortgage payment with one paycheck and the other household bills with my second paycheck of the month. Plus if I have an unexpected expense like my Air condition unit going out or car repair, I now have a month to reevaluate my budget and make sure my mortgage is paid. When you do biweekly payments you only have two weeks to make changes before the second half of your mortgage payment is due.

Now that I have done all the work for you, it is up to you to decide which method you prefer.

Ms. Smart

Mortgage calculators courtesy of Bankrate
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