6 of 6

Write now Article Tools

How to reduce your mortgage interest: The advantages of bi-weekly payments

Who wouldn't want to save thousands, even tens of thousands, of dollars in mortgage interest on their home loan? To add to the attraction of paying less interest what if you could also reduce the term of your loan? How?

You could pay an annual lump sum amount equal to an extra payment but, let's face it, some of us just can't seem to maintain a savings plan so a lump sum payment doesn't seem practical.

Another common way to save on interest paid has been to divide your monthly payment by 12 (months) and send that extra amount along with your payment every month that way making 13 payments every year instead of 12.

Example: Your monthly payment equals $1700.00 per month, divide that amount by twelve and the extra amount to include in your payment is $141.66 now making your monthly payment $1841.66.

Sometimes budgeting that extra amount to be included with your payment every month is just too much of a stretch though.

Many lenders offer a bi weekly mortgage payment plan making the additional amount easier. While a setup fee is usually charged this may seem like a more attractive idea to many borrowers.

Why would you want to take advantage of a bi-weekly payment plan?
For long term savings an adjustment to your short term spending plans may be beneficial. By making 26 half payments a year you still are sending the equivalent of 13 monthly payments instead of 12. You're not adding to the amount of your payment or making a lump sum payment, you're just making half of the payment amount every two weeks.

This has the same effect as reducing the interest rate paid on your home loan however, lowering your interest rate would not reduce the term of your loan and often a lower interest rate isn't possible when we sign our loan documents.
If you can painlessly make an extra payment each year that 13th payment is applied entirely to paying down the principal of the loan. Since mortgage interest is based on the principal balance of your home loan the lower balance means less interest paid for the term of the loan.
Making thirteen payments per year, not twelve, pays off your mortgage loan sooner.

Bi-weekly Payment Example:
1. The loan amount is $300000.00 at 6% interest for 30 years (360 months), the monthly principal and interest payment is $1,798.65.
Total interest paid during the life of the loan is $347,514.57
2. Using the same loan of $300,000.00 at 6% interest but making bi-weekly payments of $899.33 the total interest paid during the life of the loan is reduced to $273,848.31. That's a reduction of over $73,000!

And then there's the additional benefit of having your mortgage paid off in just over than 24 years instead of 30!

There's a variety of online calculators available you can use to size up your options.

Even if you don't live in the same home for the full term of the loan the short term savings of making bi-weekly payments will be considerable.

Learn more about this author, Lynnette Phillips.
Click here to send this author comments or questions.

Add your voice

Know something about How to reduce your mortgage interest: The advantages of bi-weekly payments?
We want to hear your view. Write now!