The Bi-Weekly Mortgage Payment Myth: Why It Might Not Be Your Best Financial Move

Recently, I received a common question from a client, Suzie, about setting up bi-weekly mortgage payments. Like many homeowners, her goal was to pay down her mortgage faster and save on interest. It sounds intuitive—pay more frequently, pay less over time.

But my advice to Suzie and you is this: I am not a fan of these programs, and for good reason. While the intention behind bi-weekly payments is excellent, the method often falls short, and there are far better ways to manage your money and grow your wealth.

Let’s examine why this common strategy might not be the best approach for accelerating your mortgage payoff and what you should consider instead.

The Allure of Bi-Weekly Payments: What’s the Catch?

The standard pitch for bi-weekly payments is simple: By making a payment every two weeks, you make 26 half-payments in a year. This cleverly equates to 13 full monthly payments instead of the usual 12. That “extra” payment is supposed to shave years off your mortgage and save you thousands in interest.

And yes, mathematically, making an extra payment will reduce your loan term and overall interest. The catch, however, lies in how these programs often work:

1. Paying a Month in Advance: Many bi-weekly programs (especially those offered by third-party services, and sometimes even directly by lenders) require you to essentially pre-pay your mortgage by holding your money until a full payment is accumulated. This means your money is sitting idle, not actively reducing your principal or earning you anything.
2. The “Extra Payment” is the Only Real Benefit: The entire financial advantage of a bi-weekly schedule comes from that one additional principal payment you make over the year. It’s not about the frequency. You can achieve the same result for free and with more control.

The Simpler, Smarter Way to Pay Down Principal (If That’s Your Goal)

Let’s use Suzie’s example. If her principal and interest (P&I) payment is $3,658.79 per month, then an extra month’s worth spread over 12 months is $3,658.79 / 12 = $304.90 per month.

Instead of signing up for a formal bi-weekly program that might cost you fees or tie up your money, you can simply:

• Add an extra $304.90 per month directly to your principal payment when you make your regular monthly mortgage payment.
• Crucially, ensure you mark these extra funds to be applied only to the principal.

This achieves the same result—making an extra principal payment each year without paying a month in advance or incurring any fees.

My Strong Opinion: Your House is a Terrible Piggy Bank

Now, let’s talk about the even bigger picture. While paying down your mortgage faster can feel good, it might not be the most financially intelligent move, especially if you have other options.

Here’s why I would strongly advise against sinking extra money into your house by aggressively paying down principal, even if you do it the “smart” way:

• Illiquid Investment: Money you put into your house as extra principal immediately becomes illiquid. To get it back, you have to either refinance (which costs money and time) or sell the property. In an emergency, that cash isn’t readily available.
• The “Cost to Maintain” Factor: Your home is not a zero-maintenance investment. It has costs to maintain (taxes, insurance, repairs, utilities, etc.). If your home appreciates by 4% in value next year, but you’re spending 2% of its value on maintenance, your net return on that “investment” is only 2%. If the value remains stagnant, your net return is actually negative.
• Opportunity Cost: This is the most critical point. If you have extra funds, consider the “opportunity cost” – what else could that money be doing for you?

The Alternative: Liquid Savings & Guaranteed Returns

Instead of putting that extra $304.90 into your home, imagine investing it elsewhere.

• High-Yield Savings or Money Market Accounts: Many of these accounts currently offer guaranteed returns of 5% or more. This is a guaranteed return on your liquid cash, unlike the uncertain “return” from home equity.
• Compounding Power: If you were to consistently invest $304.90 per month into an account earning a modest 5% compounded monthly, you would have approximately $169,000 in 24 years!
• Flexibility and Control: This money remains completely liquid and accessible. If you have an emergency, need a down payment for another investment, or want to access your funds, they are there.
• The Same Mortgage Payoff, With More Options: After 24 years, if your goal is still to pay off the mortgage early, you could take that $169,000 lump sum from your savings and pay down or pay off your mortgage, realizing the same interest savings you would have had by paying the extra $304.90 monthly directly into the house. The difference? You had access to your cash and earned a guaranteed return along the way.

In conclusion, while bi-weekly mortgage payments sound appealing, it’s often an inefficient way to leverage your money. Focus on financial strategies that keep your money liquid, earn guaranteed returns, and provide maximum flexibility. Your house is a home, not necessarily your best investment vehicle for extra cash.