Compare Bi-weekly Mortgage Payments to Monthly Payments
Posted July 23, 2014


With the typical 30-year monthly mortgage there are 12 payments scheduled per year, with the loan being paid off in 360 months. Each payment consists of principal (the part you owe the bank) and interest (your cost for borrowing from the bank). Initially, as we all know, a significant portion of each payment goes toward interest, and a much smaller portion goes toward the principal. There is eventually a reversal of these two amounts as the lifecycle of your loan progresses.

With a bank mortgage set up on a bi-weekly payment schedule, there will be 13 payments scheduled each year. The money paid is allocated on the same amortization schedule as a 12-month, with the last or 13th payment going toward the principal (because the contractual 12 have already been paid). If continued along this schedule, your loan will be paid off approximately 4 years sooner, depending on the interest rate of the loan.

Another way for the homeowner to manage their payments (which could be more advantageous) would be to set up their own bi-monthly payment schedule and apply 1/12 of the 13th payment to each monthly payment. This would increase the monthly amount paid against the principal, cutting yet another month off of the loan time.

The advantage of the latter is that the homeowner is in control of paying that extra amount per month, or they can make just make their regular monthly payment, assuming they have a regular 30-year mortgage. Considering the homeowner’s economic situation and the possibility that it could change from year to year, a self-administered bi-weekly payment schedule may be more advantageous and provide more peace of mind.

Posted By: Michelle Keaton-Barrow
July 23, 2014 09:11 PM




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