If you are seeking information about mortgages there is a good chance you are looking to purchase a home or refinance an existing mortgage. With so many options to choose from (banks, brokers, credit unions, etc.) the chances of choosing a mortgage product that might not be the most beneficial has certainly increased in recent times. With some mortgage banks that have recently gone under, the need to perform your own due diligence before making what could be a 30-year financial commitment could potentially save thousands in interest paid over the loan. In more extreme cases, the right loan program could keep you in your home should rates in secondary mortgage markets fluctuate.

With bi-weekly payments, you pay half of the monthly mortgage payment every 2 weeks, rather than the full balance once a month. This is comparable to 13 monthly payments a year, which can result in faster payoff and lower overall interest costs. For example, the bi-weekly mortgage payment process can pay off a $200,000 30 year fixed loan at 7% in approximately 24 years (75 months sooner than a standard payment plan), with a total of $68,925 in interest savings.

Your lender might offer several bi-weekly payment options, where you make a payment that equals half of your normal monthly payment every two weeks. There is a considerable difference between different payment plans, so you should check with the lender to find out how they will treat your bi-weekly payments, exactly.

What most borrowers get when they convert their loan from monthly to bi-weekly payments is a pseudo bi-weekly (or standard bi-weekly) payment plan. On the pseudo bi-weekly, the bi-weekly payments are credited to an account managed by your lender. Once a month, as with standard payments, the monthly payments are made out of that account. The excess amount accumulated in the account by the end of each year is equal to a full monthly payment. At this point your lender makes a double payment.

In order to set up a true bi-weekly (or simple interest bi-weekly) payment schedule, you must have a lender that will immediately credit each 1/2 monthly payment upon receipt. The lender must calculate interest for two-week intervals and apply the bi-weekly payments less the interest to reduce principal every two weeks.

Bi-weekly payments should not be confused with bi-monthly payments.

Semi-Monthly or Bi-Monthly Payments:

The payment option commonly called 'bi-monthly' is a bi-weekly payment option, however, some lenders offer a true bi-monthly payment service to homebuyers.

With true bi-monthly (or semi-monthly) payments, you pay half of the monthly payment twice a month (for example, you pay 1/2 of the monthly payment on the 1st of the month, and the other half on the 15th). There will be a total of 24 semi-monthly payments in a twelve-month period and the lender must not hold the payment until the end of the month and apply it to the loan balance right away.

Semi-monthly or bi-monthly payment plans don't achieve the same results as the bi-weekly payment plan and are rarely used. On a 30 year fixed mortgage, for example, it will take 29 years and 11 months to pay off (1 month sooner than a standard payment plan), and you will save only one month's interest.

Please note that if your lender withdraw half of the monthly payment from your bank account every half of the month, but apply the payments to your loan only once a month (as they did before), you will save nothing at all. This kind of bi-monthly payments, however, allows you the flexibility to schedule your monthly payments in a way that works better with your personal finances.