Should I pay my mortgage payments bi-weekly instead of monthly?

I recently received a great question from a client that purchased her home last month and thought it would be good to address on my blog as many people may not fully understand their options.  Her question was:

The bank that owns the loan has been sending me information on an option to change the method of payment from monthly to bi-weekly.  Do you think this is a good thing or not? 

My reply was: 

I’d say it depends…there are pros and cons to changing the payment.  By changing the payment from monthly to bi-weekly, you are essentially making an extra payment for the year (26 payments of half, or 13 total payments vs. 12 payments for monthly).  The pros of paying bi-weekly are that you pay down your mortgage quicker, thereby also reducing the amount of interest you will pay over the life of your loan.  You can also coordinate these payments to be right after you receive your paycheck – which is a selling point that banks like to use.  The cons are that you are making extra payments throughout the year, thus reducing the amount of income that you could allocate to other expenses or savings.  Also, you want to make sure to read ALL of the fine print to ensure that your bank is not charging you a fee for this service. 

Your other option if you are looking to pay down your loan quicker (and thus reduce total interest paid over the life) is to make an extra payment to your lender towards the principal.  This can be done at any time of your choosing and for any amount – you just want to make sure that you specifically write on the check that the amount is to go towards paying down your principal.  Assuming you are current on your loan payments, then this extra payment should not go towards interest at all, but should entirely go towards reducing your principal balance.  With this option, you are choosing when & if you make any extra payments to your lender.  

With the bi-weekly option, you don’t have to think about it….you will automatically be paying extra over the year. 

Hopefully, this will help you make a good informed decision!