Biweekly Mortgage

A biweekly mortgage is a mortgage with principal and interest payments due every two weeks. Instead of making 12 monthly payments, a biweekly mortgage requires 26 half-month payments.

A biweekly mortgage is a simple and effective way for borrowers to decrease their interest costs and pay off their mortgages sooner. That assumes there are no additional fees or commissions associated with setting up a biweekly mortgage as opposed to a monthly mortgage.

Biweekly mortgages are effectively like paying 13 monthly payments, while mortgage payments are by default due monthly, making up 12 payments. Paying biweekly means paying less interest, as the principal balance that interest is calculated on is lowered weeks early. Total interest paid over the life of the loan is less and the buildup of equity is faster as the borrower pays the loan off earlier than with a monthly payment program.

For example, a borrower has a 30-year $250,000 mortgage financed at a 4% interest rate. The monthly payment for that loan would be $1,193.54. Over the course of the 30-year loan, the total interest paid would be $179,673.77.

Now, instead of monthly payments, if the borrower pays biweekly payments, there is the potential for hefty interest savings. Under the biweekly payment setup, biweekly payments would be $596.77, and the total interest paid for the entire life of the loan would be $150,450.40. Paying biweekly versus monthly would save the borrower $29,223.37.

Potential issues with biweekly payment programs are prepayment penalties and fees for setting up such a program. As well, a biweekly program can be a commitment, which means making monthly payments is no longer an option, but biweekly payments are a requirement. A biweekly mortgage program is a contract, becoming a financial obligation. It can be easier to manage cash flow without the commitment of a biweekly payment obligation.

The alternative is for borrowers to manage their own biweekly payments, placing the money for extra payments in a savings account and making an extra monthly payment once a year. This goes back to being able to manage their cash flows on their own, allowing for potential unforeseen obligations. 

The big issue that could make the above workaround less effective is that some banks don’t offer a biweekly program. Instead, they may hold the payment until receiving the second half, not applying it to the principal early.