Does paying my mortgage weekly or bi-weekly actually help me pay off my mortgage faster?

Payment frequency is not the major factor in reducing the amortization period of your mortgage. Principal reduction is! But what about all the talk of weekly or bi-weekly payments taking five years off your amortization period. Although you will save some interest making your payment weekly or bi-weekly, ultimately it is the fact that your total payments each year are higher that results in the significant reduction in your amortization. For instance, using a bi-weekly payment example for demonstrative purposes, when a client chooses a bi-weekly payment of $500 over a monthly payment of $1000, in fact they are choosing to pay an extra $1000 annually.

In most cases a bi-weekly payment is simply a monthly payment divided by two. That means that instead of paying $12,000 in monthly payments, you are now paying $13,000 in bi-weekly payments. That extra $1000 is what ultimately cuts the years off your mortgage. But you can do close to the same thing by increasing your monthly payment, if a monthly payment frequency would be more convenient for you, or by taking an accelerated semi-monthly payment. See the numbers below:

Example is based on a $200,000 mortgage at an interest rate of 6.15%.

Monthly Regular Monthly Accelerated Semi-monthly Accelerated Bi-weekly Accelerated Payment $1297.50 $1405.62 $702.81 $648.75 Yearly Payments $15,570.00 $16,867.44 $16,867.44 $16,867.50 Extra funds paid each year compared to monthly regular N/A $1,297.44 $1,297.44 $1,297.50 Actual Amortization Period 25 Years 21 Years 20.964 Years 20.960 Years Total Interest Paid $189,249.57 $154,518.38 $153,615.95 $153,544.91 Interest savings over life of mortgage as a result of increasing mortgage payments N/A $34,731.19 $35,633.62 $35,704.66

Most people find that a payment frequency tied to how often they earn their income makes the most sense. And where possible, increase your regular payment amount or make periodic lump sum payments as both will help reduce the length of time it will take to repay your mortgage fully.

Please feel free to contact us for some free advice.