The Bi-Weekly Mortgage Payment Myth
Why paying your mortgage bi-weekly doesn't save as much as financial gurus claim.
One thing you'll hear from TikTok financial gurus and blogs online is that it's financially beneficial to pay off your mortgage bi-weekly rather than monthly. This is not really true.
The Math
It is true that for an APR of X%, the APY given that APR will be slightly higher if the accrual period is shortened. Say, for instance, if you accrue daily instead of monthly, the total interest paid at the end of the period will be slightly higher. But, it's not by much.
The formula: A = P(1 + r/n)^(n*t)
Think about it: you're still paying off a loan for X amount of money in the same amount of time and the same rate of interest accrual, you're just splitting it up into more actual payments so that the principal amount is slightly less when interest is actually accrued on that monthly basis (say 3 payments fall in a month rather than the normal 2). But, that is the only source of your savings, and that really doesn't happen very often (only about twice per year).
Example Calculation
For a $200k loan over 30 years with monthly interest accrual:
| Payment Schedule | Total Amount Paid |
|---|---|
| Monthly | $455,497.20 |
| Bi-weekly | $454,774.23 |
| Difference | $722.97 (0.16% less) |
This difference only becomes smaller as the term of the loan period decreases (10-year, 15-year, or 20-year loans).
What the Gurus Are Actually Talking About
The savings these TikTok financial gurus are actually talking about is simply the savings from paying back your loan quicker.
Some gurus tell you to cut your monthly mortgage payment in half and pay that every two weeks. Since there are 26 two-week periods in a year and you've spread your 12 payments into 24, making 26 of those payments means you're paying an extra 2 half-payments (one full month) every year.
There is a very negligible amount actually saved from spreading out the payments. What you're really doing is making an extra payment every year.
Why This Advice Is Misguided
If your plan is to pay off your mortgage faster anyway, you might as well opt in for a shorter loan term:
- Shorter loans have lower interest rates (less risky for banks)
- The only downside: overpaying a longer term is optional, while underpaying a shorter term gets you into default
Another consideration: mortgage rates are relatively low compared to potential investment returns. The money you would be overpaying could potentially go into an investment plan that has a higher return than what you're saving on your mortgage.