What is a bi-weekly mortgage payment? Who is it for? Who is it not for?

Have you been thinking about paying your mortgage off sooner? If so a bi-weekly payment plan may be the right decision for you.

First it is important to explain what a bi-weekly mortgage payment plan is – it is the act of making a mortgage payment every two weeks compared to once a month. Paying your mortgage once a month equals to twelve mortgage payments a year – very simple. A payment every two weeks (Bi-Weekly) will equal to making 13 payments a year.

What is the benefit of making a 13 mortgage payment each year? A 13th payment will go directly towards principal, and will reduce the amount of interest paid on your mortgage loan which will lead to paying off your mortgage loan sooner. For example, if you have a $300,000 mortgage, with a 30-year term, and an interest rate of 3.5% - this will give you a principal and interest payment of $1347.13. When you pay $1347.13 monthly your home, and mortgage loan will be paid off in 30 years. When you set up a bi-weekly payment plan paying $673.57 every other week, your mortgage will be paid off in 26.17 years – 3.83 years ahead of schedule. Another way of accomplishing the same task instead of paying every other week is to make one extra payment towards principal every year of $1347.13, or even sending in an extra $112.26 per month directly towards your principal ($1347.13 / 12 = $112.26) or $1459.39 each month.

As mortgage interest rates continue to rise, the power of the bi-weekly payment will become even stronger for individuals who get higher interest rates as the mortgage will be paid off even sooner with bi-weekly payments.

Before you go and set up a bi-weekly payment plan, make a 13 payment per year, or add an additional 1/12 onto your monthly mortgage payment it is important to establish whether this is, or isn’t for you.

Who is this for?

• Making additional principal payments is for someone who has the ability to contribute more money towards their mortgage payment, and it would not hurt them financially.
• It is for someone looking to stay in this property for the long term, and wants to pay their mortgage off as quick as possible.

?Who is it not for?

• If your finances are tight it would be better to put your extra money into a savings account, etc.
• If you are planning on selling your home in the near future, it may not make sense to apply more money towards the principal of your home.
• If you have a better investment that will produce a higher return than paying off your home sooner it may be better for you to put your extra money into that source.

To determine if this is the best option for you it may be best for you to consult with your CPA, tax preparer, significant other, or financial advisor, etc. to determine if this is something that may, or not make sense for your long term financial plan, and objective.

Respectfully,

Steven P. Ross