Federated Lending Corporation

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Biweekly Mortgage Evaluation

I Get a fair number of questions about bi-weekly payments. A bi-weekly payment plan is really simple. Instead of paying your mortgage payment once a month, you pay half of it every two weeks. Most months, we only collect two half payments – so nothing is different. We take those two half payments and we apply one payment – just like everyone else. However, twice a year, we end up collecting 3 payments (because there are 26 half weeks a year and 26 divided by 2 = 13 payments). So, we apply that extra half of a payment on those months. Because you are paying that extra payment each year – you pay your loan off faster.                                                                                        

But, it’s important to know that there is nothing magical about a bi-weekly payment. Again, it only shaves interest and time off of your loan because you are paying extra. I absolutely detest those companies out there that market a bi-weekly option to new loans. These firms collect the payment (plus a fee) from the client and then they make that payment to the mortgage servicer. The client could do this themselves.

There are a bunch of other easy payment options that have the same effect as a bi-weekly as well. Check out my little chart here. If you make one extra payment a year – you get essentially the same interest and time savings as a bi-weekly. In fact, if you make your one extra payment at the beginning of each year – you save even more than if you paid bi-weekly. Or, you can add 1/12 to each payment (if your payment is $1,000 – just add $1,000/12 = $83 and pay $1,083 each month) and you’ll get an almost identical interest and time savings as if you paid bi-weekly.