Biweekly Mortgage Payments Not Worth The Fee

One of the fastest ways to pay off your mortgage early is to make at least one extra mortgage payment per year.  Unfortunately, this requires that you come up with the extra payment each December (assuming you make your extra payment at the end of the year), and often requires you to submit separate checks or make separate transactions online to indicate the additional amount is specifically for mortgage principal reduction.  Fortunately, there is an easier way – biweekly mortgage payments.

Most banks and mortgage lenders will allow customers to make biweekly mortgage payments (your normal monthly mortgage payment made every two weeks), but many charge a fee to enroll in this plan.  What’s the benefit of making biweekly payments you ask?  Well, it is essentially the same as making one extra payment a year.

There are 26 biweekly periods in a year, and 26 monthly half-payments are the equivalent of 13 monthly mortgage payments.  Yes, that’s one extra payment per year.  Making one extra mortgage payment per year could shave as much as 6 years off a 30-year mortgage.

About.com’s Home Buying/Selling site put together a great example to demonstrat the benefits of paying your mortgage bi-weekly:

Let’s look at a mortgage with a principal balance of $150,000, a term of 360 months, and an interest rate of 6%.

Monthly principal and interest payment = $899.33
Total Interest During Life of Loan = $173,757

Using a Bi-Weekly Option
Bi-Weekly Payment = $449.67
Total Interest During Life of Loan = $135,294
The loan is paid off in 24 years instead of 30

So as you can see, using a biweekly mortgage payment plan shaved six years and nearly $40,000 in interest off the life of the mortgage. That’s a significant savings.