Which Payment Frequency Option is Best to Pay Down my Mortgage the Fastest?

Question

I just bought a house, and I know when you make bi-monthly payments to your mortgage you end up making an extra month of payment at the end of the year.

If I choose to pay weekly, is this better? Would I end up making more than an extra month payment at the end of the year?

Thanks for any advice!

Account Closed · Answer

Please avoid those awful Mortgage Accelerators. They cost thousands of dollars and don't provide any benefit that you couldn't do for yourself with an Excel spreadsheet.

Read my de-bunking mortgage accelerators article for the gory details.

Jon Holdman · Answer

Paying larger payments pays down a mortgage quicker.  Paying the same amount more quickly helps little, if at all.  I have a line of credit with a credit union where any payments get applied right away, so paying at any time eliminates future interest on the principle I've just paid off.

These biweekly things work by paying 26 bi-weekly payments each equal to half you monthly payment.  So, that's 13 payments a year instead of 12.  That's what matters, not the bi-weekly frequency.

If you use Excel, you can enter in a payment amount, your loan balance, and rate and compute the number of payments it will take to pay off the loan.  The function is NPER (number of periods).  If you just include and extra 1/12th of your payment along with each payment, it will have the same effect as these biweekly programs.  Certainly do not pay someone to do this for you.  Keep in mind we're just taking about the P&I part of your payment.  The tax and insurance escrow amounts are separate.  Unfortunately, its impossible to make those go away.

Mitch Kronowit · Answer

Those bi-weekly payment programs usually mean you make the equivalent of one extre payment a year. No you don't send a check for an entire extra payment in December.

Bryan Hancock · Answer

Here is another good article on the UFF plan:

The UFF Plan: Another Good Fairy of Rapid Payoff

I have yet to find a program that adds much material value.  Most of the programs out there take advantage of people's ignorance about mortgage math and how loans are amortized.  They also prey on people that are poor at managing their money.

Ned Carey · Answer

Jeffrey,

That's a great article. I knew these things were bunk when people selling them couldn't explain where the savings were coming from.

Account Closed · Answer

Just plug in the terms of your 30 year mortgage into a financial calculator. Change the amortization term from 360 (30 years) to 240 (20 years) and solve for payment. That's the payment that will fully amortize the debt in 20 years. If you want to pay off in 10 years, just change the term to 120 (10 years) and solve for payment. It's not rocket science.

If you have a prepayment penalty, then you must wait until it expires before increasing your payment.

Jim S · Answer

If I remember correctly, if you add 10% more $$ for principle reduction each month, you will pay off your 30 year mortgage in 21 years.

David Wedemire · Answer

Hi Claudia

Based on your original question between weekly and biweekly payments, the total payment for the year is the same. The difference is the effect on the compounded interest as you are making more frequent payments earlier in the cycle.

Bryan Hancock · Answer

The frequency will not matter if you have a conventional, fully-amortizing, 30-year mortgage.  You will only get credit for the extra payment once a month.  So if you are looking at things from an annual basis you would want to front load the payment on the first month.  That would amortize more each month in each subsequent month.

If you have a  "simple interest mortgage" then the payment will be applied as soon as you send it in so the frequency would be more granular.  Sending payments earlier will still amortize debt quicker in this scenario.  The only difference is that your time gates are daily instead of monthly.

Here are some great articles about early prepayment from The Mortgage Professor:

Prepayment Articles

and here is one that specifically addresses paying early:

Does It Pay to Make Mortgage Payments Early?

Hope that helps...

Which Payment Frequency Option is Best to Pay Down my Mortgage the Fastest?

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