Should I Enroll In a Biweekly Mortgage Payment Plan?

In many real estate finance books I have recently read, biweekly mortgage plans are frequently toted as a highly recommened method to get ahead on the amount of equity you have accumulated in your property.
However, the specific way to calculate just how much you will save in your specific situation by using this type of payment plan and a description of the fees involved are generally left out of these investigations. Shedding some light on these subjects will be the goal of today’s posting.
To start off, we need to know what exactly a biweekly mortgage payment plan is. A biweekly payment plan is simple enough to understand – it basically means that you pay your total monthly payment in two scheduled installments throughout the month (every two weeks). So, you are still essentially paying the same amount each month that you would with a monthly payment plan.
However, there is a signficant difference. To understand this, let’s walk through an example. In this example, we will assume that your fixed monthly mortgage payment is $1000.
Now, how many months are there in a year? 12, right? This means that your total yearly payments would be 12 installments of $1000 = $12,000 per year.
Now, how many weeks are there in a year? 52, right? Assuming that you pay 1/2 of your $1000 mortgage payment every two weeks ($500), this means that you will pay 26 (52 divided by 2) installments of $500 = $13,000 per year.
If you’re like me, you’re probably saying to yourself – “is this some kind of a trick?” As it turns out, it sort of is. You are basically spreading out an increased payment throughout the entire year, thus making it easier for your checking account to part with the money. 
But, it is a trick that turns out to be in your favor. Because of the descrepancy between the number of months and weeks in a year, you end up paying one whole monthly payment more each year. And, paying this extra payment will allow you to accumulate more equity and lower your interest liability quicker, saving you money.
How much can you save in the long-term by using a biweekly payment plans?
So, we know that using a biweekly payment plan, at least at first-glance, will save us money in the long term. However, just how much will it save us?
To assist in this investigation, I created the spreadsheet tool (can be accessed at the link below) to do a comparison between the total costs of a monthly vs. a biweekly payment plan. The spreadsheet contains two tabs – one labeled “Monthly Payments” and the other labeled “Biweekly Payments.”
To use this tool to calculate the amount that you can save using a biweekly payment plan, follow the steps described below:
  • As always, click on the link above, and download an Excel version copy to your Desktop by clicking File –> Download As –> Excel.
  • On the Monthly Payments tab
    • Enter your specific property purchase details – interest rate, loan term, home purchase price, and expected downpayment. The model will then automatically calculate the loan principal amount in Cell A2.
    • Next, use Excel’s Solver function to solve for the monthly mortgage payment that makes the principal amount remaining in Column G a value of “0” after the number of payments to fit your situation (either 360 for a 30 year mortgage, or 180 for a 15 year mortgage), by changing cell D2 (the 1st monthly payment cell).
    • This will then find the correct monthly payment amount that you should expect for your loan amount. Additionally, it will calculate the total home equity you will have after 1 year of monthly payments and the total cost for the mortgage over the specified loan term.
  • On the Biweekly Payments tab
    • The loan specifics you input in the Monthly Payments tab will automatically be carried over. A biweekly payment plan set up fee of $400 is also applied (see section below for more information).
    • Additionally, as is the rule for biweekly payment plans, the monthly mortage payment you calculated using Excel’s Solver function will be divided in two and become the mortgage payment you will pay every 2 weeks (total of 26 period payments per year).
    • The spreadsheet will automatically calculate your total home equity after 1 year, the total cost of the mortgage, and the amount you would save by switching to a biweekly payment plan.
    • To find the time it takes to pay off the loan using the biweekly mortgage plan, just scroll down the page in Column G, and find the last positive principal amount remaining value. Once you have found that, record the corresponding period in which this occurs, and that will give you the period in which you will pay off your loan.
    • To find the number of years this will take, simply divide by 26.
    After inputting the values from the loan specifics that are on my radar for my condo purchase this fall (loan of $95,000), I came up with the following results:
    • I would accumulate $600 more equity in the first year of home ownership by using the biweekly mortgage plan, given the same downpayment.
    • I would pay off the home loan in 25 years instead of the normal 30 years with the monthly payment plan.
    • Using the monthly payment plan, the $95,000 loan would end up costing me a total of ~$194,000.
    • Using the biweekly payment plan, the $95,000 loan would end up costing me a total of ~$174,000.
      • This would result in a savings of ~$20,000 for only this small loan amount! The magnitude of savings would be even greater for larger loan amounts!
    Would I get the same benefit by simply paying an extra month’s payment each year?
    In short, yes, you would see the same benefit by simply paying off an extra month’s payment each year.
    However, while there is no doubt that this would save you the money associated with the set up fees for the biweekly payment plan (see section below), I believe that for the average citizen, this is not be the wisest course of action.
    Why is this? Simple. It’s because most people (and probably myself included) lack the discipline to set aside this extra money each month to make this work effectively. In order to make this successful, you have to have a fullproof automatic system that you are obligated to stick to.
    In short, the smart side of your brain must use the biweekly payment plan to protect the dumb side of your brain from doing something that will negatively result in the long term.

    Are there any fees involved in setting up a biweekly payment plan?
    Yes. According to the link below from, there are two ways that fees can be charged – either all up front or pay-as-you-go. Up front fees range from $300-$400, and pay-as-you-go fees range from $4-$9 per month. I would defintely recommend to go with the up front fees because even if you are in a house for as little as 5 years (60 months), that would equate to a total of a $540 fee if you used the pay-as-you-go rate of $9 per month. – Biweekly Payment Plans

    Because of this added fee, you will want to analyze your situation to make sure biweekly payments are the best thing for you.

    When would I not want to use the biweekly mortgage payment plan?

    There are three situations that I can think of off-hand when you would not want to choose the biweekly payment plan.
    1) When your financial situation is so limited, that you simply cannot afford the extra payment each year.
    Make no mistake about it. With the biweekly payment plan, you WILL be investing in an extra month’s payment each year for your property. However, since this amount will be spread out throughout the year, it will be easier than you think to afford.
    However, if you are barely making enough money to feed your family, you should not try to enroll in one of these programs.
    2) When your mortgage penalizes you greatly for prepaying.
    These days, most mortgages do not include penalties for prepaying/paying off your mortgage before the specified loan term. And, realistically, this should be something that you check on anyway before committing yourself to a home loan.
    However, you do not want to enroll in a biweekly payment plan if you will be penalized thousands of Dollars for paying off the loan early.
    3) If you are only planning to live in the house for less than 3-5 years.
    While it is plainly obvious that there are significant savings opportunities associated with using a biweekly payment plan to pay off a loan over 20-30 years (~$20,000 for a $95,000 loan). We don’t see that large of an advantage if a person is only planning to live in the property for a short period of time.
    Why is this you might ask? It’s due to the fact that it will take a fair amount of period payments with the biweekly payment plan to make up in equity what you lost initially paying to set up the program (see program fees section above).
    To decide whether you should proceed with a biweekly payment plan or not, you should first establish how long you think you will stay in the house you are buying.
    Next, you will want to calculate the total cost (total of all period payments + biweekly plan fees, if applicable) that you will pay during the time you live in the house for both the monthly payment plan and the biweekly payment plan. In addition, you will want to calculate the total additional equity you will have in the house (principal payments in Column F) at the end of the holding period for both payment plans.
    Finally, compare the total cost and equity that you will receive, depending on the payment type and make sure that you receive enough of an increase in equity with the biweekly plan to warrant the set up fee.
    For example, I included sample calculations in the Google Docs spreadsheet above for my situation. For the house that I am buying this fall, I am planning on living there for 5 years while I attend graduate school.
    • Using the biweekly payment plan (including a $400 one time set up fee), over the 5 years, I would pay a total of $35,461 in biweekly payments, resulting in an additional $10,273 accumulation of equity (on top of initial downpayment).
    • Using the monthly payment plan, over the 5 years, I would pay a total of $32,364 in monthly payments, resulting in an additional $7,162 accumulation of equity (on top of initial downpayment).

     So, in my situation, since I am accumulating an additional $3,111 by using the biweekly payment plan, this definitely warrants the addtional $3,097 expenditure needed to make it happen.

    I hope this post helps you understand the biweekly mortgage payment world a little bit better! Please let me know if you have any questions.

    Keep on learning!


    To receive updates on topics such as this one as soon as they are published, click on the link below to subscribe to My Money Blog: Subscribe to My Money Blog via Email

    Speak Your Mind


    CommentLuv badge