Will a Weekly, Bimonthly or Biweekly Payment Mortgage
Really Save Me Money
Really Save Me Money
January 31, 2019
Lenders who offer mortgages with shorter payment
periods than the standard monthly payment mortgage usually
do claim that they will save the borrower money. But they
seldom explain how.
The Sources of Borrower Savings
There are only three possible sources of savings to
the borrower from increasing the frequency of mortgage
payments. One possibility is that the lender offers a rate
or fee reduction on the high payment frequency mortgage. I
have yet to see an example of this, and will discuss it no
The second possibility is that the lender amortizes
the loan using the shorter payment period on the loan. If
the mortgage calls for two payments a month, for example,
the lender will reduce the loan balance on the 15th
day of the month as well as the 1st. This will
reduce the amount of interest due for the month, leaving
more of the payment for further balance reduction.
Amortizing the loan using a shorter period generates a real
saving for the borrower, but it doesn’t amount to much.
The third possibility is that the higher payment
frequency is accompanied by larger total payments. This will
also pay down the balance faster and reduce the interest
cost, but the benefit is due entirely to the extra payment
made by the borrower. The lender makes no contribution
beyond providing the mortgage that credits the extra
With weekly payments, the lender multiplies the
monthly payment by 12 and divides by 52 in order to
calculate the payment. Total payments are unchanged.
Further, every weekly payment program I have seen amortizes
monthly, which means that the lender gets to hold the
payments as they come in until the first of the month when
they are applied. There is no benefit to the borrower, just
the convenience or inconvenience of writing 4 or 5 checks
every month instead of one.
With bimonthly payments, the borrower pays half the
monthly payment twice a month, so total payments remain
unchanged. Note to readers: please don’t write me that this
mortgage should be called a semi-monthly payment mortgage, I
know that but decided it would be less confusing to follow
The bimonthly payment mortgages that I have seen
amortize on a half-monthly basis. This means that payments
made on the 15th of the month save 15 days of interest on
the payment amount, which is a real saving. However, it does
not amount to much. On 30-year
mortgages with rates of 6% or less, payoff occurs after 719
half payments, shaving just one-half of a month off the
Borrowers who find
bimonthly payments attractive can accelerate the pay-down
process by making extra payments, and I have a spreadsheet
on my web site that may help them. See Extra
Payments on Bimonthly Payment Fixed-Rate Mortgages.
For example, the borrower with a $200,000 mortgage at 4% who
pays $477.42 twice a month gets to a zero balance just half
a month early without extra payments. But if the borrower
rounds off the payment to $500, payoff occurs after 659
payments, or 30.5 months early.
A biweekly mortgage is
one on which the borrower makes a payment equal to half the
fully amortizing monthly payment every two weeks.
Since there are 26 biweekly periods in a year, the biweekly
produces the equivalent of one extra monthly payment every
year. This results in a significant shortening of the period
to payoff. For example, a 4% 30-year loan converted to a
biweekly pays off in 310 months – or 25 years, 10 months.
Biweeklies amortize on a monthly basis, so there is
no added benefit of biweekly amortization. The only
contribution the lender makes to the accelerated
payoff is to hold the borrower’s biweekly payments until the
first of the month when they are applied. The borrower could
do this for herself by placing biweekly payments in a
special bank account.