Bi-Weekly Mortgages

There's a simple trick to significantly reduce the length of your mortgage and save you thousands of dollars. The trick is to make one extra mortgage payment a year and apply that payment toward your loan's principal.

This is something you can do yourself, however beware it's also the method being used by "Bi-Weekly Mortgage Reduction Services" and "Bi-Weekly Mortgage Savings Programs" and the only difference is that they will charge you for something you can do for free. Remember, when you do it yourself you don't pay a third party set-up costs and fees! Companies that offer this service are doing nothing that you can't do yourself at no additional cost. If you plan on making the extra payment, do it yourself, it's free and easy!

For example:

Assume you have a $100,000 loan, 30-year mortgage, with a 6.5% fixed interest rate

Extra Mortgage Payments/ Year Principal & Interest Additional Monthly Payment SAVINGS Total Paid # of Years
0 $632.07 0 0 $227,542.98 29.92 / 359 mos.
1 $632.07 $52.68 $29,088.02 $198,454.96 24.12 / 290 mos.
2 $632.07 $105.35 $46,492.13 $181,050.85 20.5 / 246 mos.
3 $632.07 $158.02 $58,320.95 $169,222.03 17.92 / 215 mos.
4 $632.07 $210.69 $66,969.79 $160,573.19 15.92 / 191 mos.
5 $632.07 $263.36 $73,607.77 $153,935.21 14.34 / 172 mos.

One-time Payment

It may not be possible for you to increase your monthly mortgage payment. Keep in mind that most mortgages will permit you to make additional payments to your principal at anytime. Perhaps, five-years after moving into your home you receive a larger than expected tax return, or an inheritance or a non-taxable cash gift. You could apply this money toward your loan's principle, resulting in significant savings and a shorter loan period.

For example:

With a $100,000, 30-year, 6.5% fixed interest rate mortgage loan, the borrower will pay a total of $227,542.98 to pay back the loan in 30 years. That equals $127,542.98 in interest payments.

If the same borrower makes a one-time $5,000 payment the first day of year 6, he/she will pay a total of $204,710.75 and pay off the loan in 27 years (324 months). That's a savings of $22,832.23 in interest.

Avoid companies that provide Bi-Weekly Mortgage Reduction Services or Programs

If you search for "bi-weekly mortgage" with an Internet search engine, you will be overwhelmed by the number of companies offering "Bi-weekly Mortgage Reduction Services" or "Bi-weekly Savings Programs." Beware, you are entering dangerous waters.

These "Reduction Services" and "Savings Programs" are charging you fees to "make a bi-weekly mortgage payment" for you. The enticement is that they will save you an impressive amount of money on your mortgage and reduce the number of years you pay on your mortgage.

The enticement is that they will make bi-weekly mortgage payments for you.

The real story is that they are not actually making bi-weekly payments on your mortgage. They are making bi-weekly deductions from your bank account. These funds are placed into an account from which your monthly mortgage payment is made (which only takes 24 deductions - but during the course of a year 26 deductions will be made from your account). With the extra 2 deductions, the "Service" makes an additional mortgage payment. In other words rather than making 12 mortgage payments, 13 payments are made.

They tell you that they are providing a special service that would either not be possible for you to get on your own or that you won't have the time or discipline to make it happen.

The real story is that you can easily make an additional mortgage payment each year. An easy way to do this is to have your mortgage payment automatically deducted from your account each month with an additional 1/12 payment to be applied to the principal amount. At the end of 12 months, you will have made an additional payment. And you won't have to pay any fees to a "Service". Our Advice would be to NOT pay a service for a bi-weekly mortgage. If you want to reduce your mortgage by making an extra payment each year (13 payments) or by making "bi-weekly" payments then do it yourself. You don't actually have to make payments every other week. In fact, some loan servicers may charge you to process payments on a bi-weekly basis or even not allow it. There is, however, and easy way to accomplish the same thing. You can either add 1/12 of your monthly payment to each regularly scheduled payment or you can send in one additional full payment at some point during the year. The net effect is the same, you will reduce a 30 year mortgage down to a 23 year mortgage if you do this over the life of the loan. Your payment coupon book provided by your loan servicer will have a line to enter an additional amount towards principle. Just fill in the extra amount you want to add into your payment and your are all set.