Do Bi-Weekly mortgage payments only reduce the mortgage time because there is an extra payment?

Question

I thought that the main benefit to Bi-weekly payments was that the was less time for "interest to earn interest" because instead of wait all the way to the end of the month with interest building up, you pay off the charge half way, which prevents the interest from the first half of that months loan from earning more interest for the second half. Is this not the case?

In other words, I thought a 1st/15th of the month payment would also be very valuable, even if it doesn't equal the value of a bi weekly, am I off base here?

Answer 1

Hi, Master is correct except that you should not send in anything except your actual payment so there are no mistakes. Sometimes the payment may be refused because it is the 'wrong' amount and where does that leave you. It will be written in your loan agreement how you can make extra payments without alot of extra fees. Read it. Most of the time any extra payments will only be allowed in the exact amount of your agreed upon monthly amount. They will then be directly applied to the principal of the loan. Do not fall for any of the 'methods' to do magic accounting. It will all be written in your loan documents.

Answer 2

From what I understood, you do lower the interest you pay each month, but the biggest thing is making an extra "all principle" payment each year... so you start to significantly reduce how much time it takes to pay off your house.

Answer 3

It's mostly the extra payment.  A 1st/15th type payment might reduce your total charge very slightly, but the extra monthly payment in a bi-weekly setup makes a much bigger difference.

Incidentally, redwine is wrong, a bi-weekly payment is ever two weeks, NOT twice a month.  That's the whole point of your question (and my answer)

Answer 4

you are exactly right.

Answer 5

The idea of a bi-weekly payment is that there are 52 weeks in the year, which means you are making 26 half-payments, which equals 13 full payments. Normally, you would make 1 full payment every month, or 12 full payments in a year. (This happens because each month has a few days more than 4 weeks, except February).

So this is supposed to be a painless way of making one extra payment every year. It will reduce the length of your loan considerably, because are reducing the principal faster than usual. So you will come out ahead.

Now here is the rub. Most banks charge a 'setup' fee to do this, yet another of their countless stealth charges. I suggest skipping the bank's scheme and doing the following. To every monthly payment, add about 10 percent, to be applied towards the principal. That will do the same thing, and save you the setup fee. Of course you can pay more if you like.

Answer 6

Bi weekly is usually 2x per month, 1st and 15th is usually when it occurs.  You pay less in bi-weekly situation.  You pay only interest on  your principal, and since you have part principal payment in each check, there is less interest.  Its a good plan.  Unfortunately for me, when I wanted to move to bi-weekly, they wanted to charge me to change, even though it benefits them. So I decided against it, just too many bank fees.  tba