Weekly vs BiWeekly vs Monthly Mortgage Payments

[cashqueen]

I was checking out what I need to do to make biweekly mortgage payments and saw that my lender allows weekly mortgage payments. I can't seem to find an amortization schedule to figure out if there is any benefit to this. Anyone?

[jeffrey]

Very little. The bi-weekly advantage comes from the fact that you end up making an extra payment compared to monthly (13 vs 12) during the year - with weekly you end up making the same number of payments as bi-weekly.

[Snave]

I just saw something on this recently and I think the numbers worked out something like 23.9 years for bi-weekly and 23.7 for weekly. Jeffrey is right about making the same number of payments. All you are doing with the weekly is shaving about 2 months of interest over the life of the loan.

[cashqueen]

Thanks!

[responduser]

I was checking out what I need to do to make biweekly mortgage payments and saw that my lender allows weekly mortgage payments. I can't seem to find an amortization schedule to figure out if there is any benefit to this. Anyone?

IMO, definitely benefit with weekly payment, but again this benefit is negligible if it is for a long term period.

[jIM_Ohio]

As was pointed out already, if biweekly and weekly are paying the same amount, the only advantage is that first week pays off principal 3 weeks early, the second week pays off principal 2 weeks early and third week pays off principal 1 week early. There is an average of 2 weeks of interest saved per month.

If the weekly schedule increased the payment (so maybe 13.5 payments per year instead of 12 or 13), then you would see much more than 2 months shaved off end of mortgage.

I ran numbers like this for pre-payment (check my blog) and it came out to something like this.

P&I of ~$1700/month

I can afford $625 extra payment 3X per year in October November and December. That is nearly 1 months payment. The difference between paying $625 each month or $1875 in December was around 10 months. Meaning if I send the smaller payments in sooner, it saves me more interest and pays off loan 10 months sooner (that if $1875 payments were sent in once a year).

I'd have to double check that math to give more accurate numbers. But smaller payments more often did pay it off sooner, but not enough to make me think the savings was significant.

[robpeiffer]

12 13 or 14 payments?

Biweekly payments save money (less interest) over monthly payments because you pay the equivalent of 13 monthly payments in a year instead of 12 (paying every 2 weeks = 26 payments/year).

Sites I have seen that promote weekly payments recommend that you pay the equivalent of 14 monthly payments to realize greater savings.

Use the formula of <Monthly Payment> times <14> divided by <52> to get a weekly payment amount that will result in paying 14 months of payments in 12 months. That's 2 extra payments so you pay less interest and pay off the loan sooner.

[Tree0164]

Also make sure if you are doing bi weekly payments that your mortgage company isn't charging a fee. I get a letter every year or from my mortgage company offering to switch to bi weekly payment

What I am doing is adding a bit extra to each monthly payment to equal one extra payment per year -it is not a huge amount but will save me about 6 to 7 years on it.

[Nika]

Very little. The bi-weekly advantage comes from the fact that you end up making an extra payment compared to monthly (13 vs 12) during the year

That's true, this is where the real savings come from. But, if your mortgage company applies your bi-weekly payment immediately and does not wait till the end of the month to do it, won't you also be saving a little bit on interest?

[JoeP]

Just make an occasional principal-only payment. We've done this with tax return money early in our mortgage cycle. Now that we have only a few years left on it, it doesn't make as much sense to make the extra payments.

[phantom]

That's true, this is where the real savings come from. But, if your mortgage company applies your bi-weekly payment immediately and does not wait till the end of the month to do it, won't you also be saving a little bit on interest?

If you want to save as much as possible on interest, the key is more in making sure your payments match your paychecks than in picking a certain pay schedule. If you get paid once a month, in order to make weekly payments, you have to hold some of the money from your paycheck for four weeks to still have some left for the last weekly payment. In that case, you'd be much better with monthly payments sent right after you get your paycheck. Similarly, if you got paid every week, you would have to hold money for a couple weeks to make one big payment every month. So, you would be better with weekly payments. Of course, this is all assuming you don't have anything to do with your paychecks other than pay the mortgage, which probably isn't the case. So, I guess I should generalize and say that the way to save the most interest on your mortgage by timing your payments is to send whatever money you're going to send to it as soon as it's available.

Of course, like you said, you're going to save more by paying more than you will from getting the timing right, especially when interest rates are as low as they are nowadays. So, if a certain billing schedule helps you to trick yourself into sending more money, it will probably help you save more on interest than the billing schedule that matches when you get paid.

[Petunia 100]

That's true, this is where the real savings come from. But, if your mortgage company applies your bi-weekly payment immediately and does not wait till the end of the month to do it, won't you also be saving a little bit on interest?

No. When you sign up for a bi-weekly or weekly plan, your partial payments accumulate in a suspense account until the 1st of the month. On the 1st of the month, your money is applied.

With these plans, the savings comes from paying an extra payment each year. (2 one-half payments with the bi-weekly, 4 one-quarter payments with the weekly).

If you had a HELOC, you could save some interest by paying more often than once per month, but not with a first mortgage.

[Nika]

No. When you sign up for a bi-weekly or weekly plan, your partial payments accumulate in a suspense account until the 1st of the month. On the 1st of the month, your money is applied.

That is not always true. My credit union applies the payment immediately. It does not hold it until the end of the month. I have double checked. And you see the principal difference reduced after each payment. (It is free, but you can only elect the bi-weekly method when you are getting a mortgage or refinancing, you can't request one on an existing mortgage). They structure it when you are applying for the mortgage and require automatic withdrawal from their account for this option. BTW, they don't advertise the bi-weekly option, you have to ask.

[Petunia 100]

That is not always true. My credit union applies the payment immediately. It does not hold it until the end of the month. I have double checked. And you see the principal difference reduced after each payment. (It is free, but you can only elect the bi-weekly method when you are getting a mortgage or refinancing, you can't request one on an existing mortgage). They structure it when you are applying for the mortgage and require automatic withdrawal from their account for this option. BTW, they don't advertise the bi-weekly option, you have to ask.

My lender will immediately apply to principal payments of any amount IF (and only if) the regular payment has already been made. This is the norm in the mortgage industry.

So for example, if I have already made my Oct 1 payment, and on Oct 5 I want to throw an extra $50, it goes straight to principal and immediately begins reducing interest. If I have not made my Oct 1 payment and on Oct 5 I pay $50, it goes into suspense.

If I have made my Oct 1 payment and then on Oct 15 I decide to make an extra 1/2 payment, it will go to principal if I specify, but, on Nov 1 I must make a full regular payment. If I want Oct 15's half-payment to go towards the Nov 1 payment, then it does not go to principal, it goes into suspense. I can't have it both ways, I must choose one or the other.

If your credit union operates differently, that is an awesome benefit to you. Lucky!