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Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Tuesday, August 18, 2009

Should You Consider Paying Off Your Mortgage Bi-Weekly?

Most everyone pays off their mortgage by making monthly payments. It’s possible to make bi-weekly payments instead. For many, who are paid on a bi-weekly basis, bi-weekly mortgage payments can be made very conveniently.

Mick Morrow, President of Professional Mortgage Associates, LTD., in Clarkston, Michigan (email:, advises that by making bi-weekly payments, your mortgage can be paid off approximately six years earlier than by making monthly payments.

A bi-weekly mortgage calculator is available at the website Utilizing the calculator, you can quickly see the benefits of bi-weekly payments:

With a $200,000, 30-year, fixed-rate mortgage at 5.5% interest, the monthly payments would be $1,135.58. Bi-weekly payments would be $567.79. The bi-weekly mortgage would be paid off in 24 years with a total interest cost of $165,880.50, versus a total interest cost of $208,808.08 for the monthly payment plan, a savings of nearly $43,000!

So what’s the downside? According to Mick Morrow, many of the bi-weekly mortgage programs charge hefty fees, either an upfront fee or monthly transaction fees. While the savings clearly could justify such fees, Mick says that you can achieve similar results at no extra cost by paying a bit more with each monthly mortgage payment.

If you receive a bonus or large tax refund, you could also just add the equivalent of an extra payment once a year to one of your scheduled monthly payments (the earlier in the year, the better). You can do either without paying the mortgage company an extra fee.

(Note: if you’re receiving large tax refunds, you’d be better off to reduce your withholding and add the reduced amount to your monthly mortgage payments. Otherwise you’re giving Uncle Sam an interest-free loan.)

If you’re paid bi-weekly (26 times per year) and take half of your monthly mortgage payment out of each check, you’ll have enough extra (savings from 2 extra paychecks) to make the equivalent of an extra monthly mortgage payment, each year. As you can see from the math above, the benefits are huge. Bi-weekly payments, or as we have shown, the equivalent of bi-weekly payments, can build your equity faster and yield a fully paid-off mortgage years earlier than a monthly-payment plan would.


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