The Myth of Biweekly Mortgage Payments

Since moving, I have received SO much junk mail. I have received about three letters telling me how amazing biweekly mortgage payments. I already had my mom for that one! The junk mail isn’t all bad – I also got a coupon for buy one get one free ice cream at an amazing place up the street :)

In case you can’t already tell, I’m not a huge fan of biweekly mortgage payments. Here’s an excerpt from one of the letters (emphasis completely theirs):

* A bi-weekly program will ELIMINATE 6-10 years off your current $286,000 loan.

* No Upfront Fee to setup biweekly (now deferred).

* Weekly and bi-weekly debit amounts are easier to budget throughout the month because the debits are much smaller and your account can be debited on or around the same days you get paid.

This mostly seems sketch because it requires sending my payments to a third party processor instead of to my lender and then that processor sends the payments on to the lender. Plus, there are fees involved. And it takes up to 5 business days for this third-party processor to receive the funds.

When you make biweekly mortgage payments, you usually end up making MONTHLY_PAYMENT/2 every two weeks. Since there are 12 months in the year, but 26 biweekly periods, you end up making the equivalent of 13 payments throughout the year. Adding an extra $100 to each monthly payment would accomplish the exact same thing as making biweekly payments.

Even if my lender offered a biweekly payment schedule, I wouldn’t do it. Why? I am paid monthly, on the last business day of the month, and my mortgage payment comes out on the 1st of the following month, just like my rent did before. I would consider doing biweekly mortgage payments if I was paid biweekly or weekly, but as it stands, biweekly payments would result in unbudgeted money coming out of my checking account two months out of the year.

Readers, what do you think of biweekly mortgage payments? Have you used them or do you just remit extra payment with your regular monthly payment?

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21 thoughts on “The Myth of Biweekly Mortgage Payments

  1. Bi-weekly payments were the way I went with my mortgage. Less time for interest to accrue meant that I chipped away at the principal that much faster – when you work out the math it’s actually a little better than paying the equivalent monthly since those two extra weeks with a little less principal add up to many days when calculating interest over the life of a mortgage. If I had to guess, you probably aren’t doing the standard 25 yr amortisation though (much shorter?), so the effect will be muted in your case. I did it for sake of convenience because it matched up with my payroll.

    Then I doubled my bi-weekly payment and really started laughing all the way to the bank. Mortgages in Canada may have bad rates compared to the US (eg. 4.25% fixed for 5 years in Canada vs. fixed for 30 years in the US), but the prepayment options can be generous. On top of that I could prepay up to 20% of the original principal amount, every year!

    I can see why you’d want to stick with a monthly payment if you are paid monthly. I find it very odd you have to go through a 3rd party to pay your mortgagor, however. As for being easier to budget because the amounts are smaller is a ridiculous statement, to me. The amount doesn’t matter when it comes to budgeting, though I suppose some are affected psychologically more than others.

    • That makes sense, but I think that with my mortgage, the interest is calculated monthly, regardless of if I make extra principal payments throughout the month. I still make them when I have the money, e.g. on pay day tomorrow, I will transfer some money to the mortgage and I did a couple times earlier this month when I had some extra money.

      I’m on a 30 year amortization and my rate is fixed for 5 years. I also have zero pre-payment penalties whatsoever and can pre-pay the mortgage by doing an immediate transfer from checking to mortgage as if it was a savings account and see the balance go down :)

      My mortgage is with a credit union – I’m guessing that’s why. If I do normal (monthly) payments though, I make them directly through my credit union. It is set up to automatically transfer from my checking account on the 1st.

      I think it doesn’t matter to *us* for budgeting, but it does for other people ;)

  2. Jeez, my mortgage lender doesn’t charge extra fees to do the bi-weekly payment and doesn’t go through a third party.

    Basically, I can see why it might be better for some people who are paid bi-weekly (if there are no fees), but I’m also paid monthly. And yes, it’s just a way of making additional payments, which can be made at any time if you’re not doing biweekly.

    Our mortgage update will be posted Wed. :)

    • My lender just doesn’t offer it. I’m guessing it’s because you’re with Wells Fargo and I’m with a credit union :) I guess there are conveniences to Wells Fargo after all!

      My net worth update will be out Friday or Monday.

  3. Another advantage which some offers may or may not do, is converting your loan to compounding daily rather than the more conventional monthly compounding. The way conventional mortgages are setup, it doesn’t matter when you make the payment during the month. Some even allow you to make it late with no penalty (the only date my mortgage company will do an auto withdraw is on the 5th).

    So, changing to compounding daily is a benefit if you can pay early or know you’ll never be late. Even then, you can make payments on the 1st and 15th and it will accelerate your pay off.

  4. I’m on the fence about it. I think it would work great for someone who gets paid bi-weekly. I get paid monthly and we are currently paying double mortgage payments so I just send it all in at once.

    • I do my net worth checks as of the last day of the month, so I prefer to see savings increase / mortgage go down as of that day. That’s why I’ll probably make principal payments on payday and then let the automatic transfer regular payment go through on the 1st.

      Good on you guys for making double payments! I think the minimum extra payment I plan on sending each month is around $1,600, which is a bit more than double.

  5. If I bought a house, I would use accelerated biweekly because I could match it to my pay schedule (26 pays a year). It’s a better idea than passive monthly payments. But when you’re accelerating your payments as much as you are, I can’t imagine biweekly would make much of a diff anyway.

    • Nope, I should already have shaved off the same amount that biweekly would in the next couple of months, rather than it taking the entire length of the loan… I think that if you’re paid biweekly, doing biweekly mortgage payments isn’t a bad idea, especially if there are no fees for it!

  6. My husband used to be paid monthly. At his last job, he was paid bi-weekly so yes, there were 2 months out of the year where he had an “extra” check…an extra amount where the bills remained a flat amount. Now, his new employer is going to switch to weekly pay so it doesn’t really matter for us.

  7. The ING Orange loan is a 5 year with biweekly already built in. I would not personally do it otherwise as there is no difference between doing that and prepaying principle.

  8. I am also paid monthly (did not realize this was so common!) so no bi-weekly payments here. I need to sit down with Mr NTF and discuss our plan for paying our mortgage down, but we haven’t even had our first payment yet so there is time.

    • I’ll have paid down almost $15k of the loan before I make my first payment on Thursday :) I agree though, there is definitely time to figure that out! Are you guys getting close to closing?

  9. I wouldn’t pay a 3rd party service to do bi-weekly. It pisses me off that they take advantage of people. I would just send extra principal with the regular payment if I wanted to pay ahead – but I’m not living paycheck to paycheck.

  10. In our case a biweekly payment would actually match the pay periods, but we didn’t do it because we can use those extra payments twice a year to go towards other goals. And you can get the same effect by just shortening the amortization with normal payments. Some writers make a big deal about the savings but that only counts if you never pay extra. If you’re putting in an added $2000/month, the difference in interest from paying a few days earlier is not worth the time it takes to write a blog post :)

    • You’re right. Based on my proposed pre-payment schedule, I should have the mortgage paid down to the length it would be with biweekly payments by January of next year.

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