What is the Difference Between Biweekly and a Bimonthly?

Biweekly Mortgage: Under a biweekly mortgage, instead of making the payments once a month, you make half the payment every two weeks. If your mortgage is $1,000 per month, under a biweekly system it would be $500 every two weeks. You make 26 payments per year, which is the equivalent of 13 monthly payments rather than 12. The extra payment should be taken directly off the principal, reducing the payment schedule accordingly.

The effect of biweekly mortgage payments can be dramatic. For example, if you currently have a $150,000 loan at 8 percent fixed interest, you will have paid approximately $396,233 at the end of 30 years. However, if you use a biweekly payment system, you will pay $331,859 and have it completely paid off in 21.6 years. You save a staggering $64,374 and pay the loan off 8.4 years earlier! The savings you realize using a biweekly payment schedule can save you nearly half of what it cost to buy the house in the first place.

Bimonthly Mortgage: A mortgage on which half the monthly payment is paid twice a month. It should be called a 'semi-monthly mortgage' but market practice often trumps logic. In contrast to a biweekly, a bimonthly mortgage involves no extra payments. The 24 half payments a year add to the same total as 12 full payments. Advancing the payment by half a month saves a little interest, but the effect is negligible. A 7% 30-year loan pays off in 29 years, 11 months. In order to build equity in your home more quickly, you must have a lender that will immediately credit each 1/2 monthly payment upon receipt. If your lender waits until the second payment has been received before crediting your loan, you'll never see the benefits of bi-weekly payment.

Many companies will offer to "convert" your mortgage to a bi-weekly mortgage payment plan for a fee. They'll automatically withdraw the payments from your bank account every two weeks. Read the small print on such plans. Many of them only pay your lender once a month, so the extra payment doesn't get applied to your loan until the end of the year. In the meantime, the company has been earning interest on your money as well as charging you a sometimes outrageous fee. Watch out for the bi-monthly mortgage, which is not the same as the bi-weekly mortgage and does NOT achieve the same results. With a bi-monthly mortgage, you pay one-half your monthly mortgage twice a month as opposed to every two weeks, so you don't make an extra payment over the course of a year. You save only one month's interest on a 30-year mortgage instead of seven year's interest!