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What is a simple interest bi-weekly mortgage?

By  Yoke Wong

Reviewed by Vanessa Kintu

Fact checked by Rachel Roberts

Simple Interest Bi-Weekly Mortgage

A simple interest bi-weekly mortgage is a type of repayment method for a mortgage loan.

Under the simple interest bi-weekly mortgage definition, borrowers make half the monthly payment every two weeks.

When borrowers take out mortgages to buy or refinance a property, the lenders will charge interest on top of the loan. The actual amount borrowed is the principal loan. The interest is calculated based on the principal balance.

Most borrowers would opt to make monthly payments to repay the loan. This is a common and convenient arrangement as it is easy to keep track of payment due dates.

Simple interest bi-weekly mortgage vs traditional bi-weekly mortgage

A simple interest bi-weekly mortgage is an alternative to the traditional bi-weekly mortgage.

Taking a simple interest bi-weekly mortgage means you could pay off your principal loan faster. A calendar year consists of 52 weeks and by making payments every two weeks, you will make 26 payments per year instead of 12. This repayment method will lead to an extra month of payment per year compared to the monthly payment. This additional payment will help pay off the principal loan sooner as it reduces the interest payable.

Under the bi-weekly plan, the first payment is applied toward the principal balance and interest will not be incurred on that amount. In contrast, in a monthly payment plan, the lenders will hold the first payment until the second payment arrives in the following month, before applying the two payments toward the principal balance. Interest will continue to accumulate on the loan balance during this period.

However, borrowers should be mindful when they are enrolling in a bi-weekly payment plan, as it may not be suitable for everyone. Borrowers should also understand the terms of their mortgage, as some lenders may impose a penalty for changing a repayment plan.

Additionally, some lenders may charge fees for the bi-weekly payment plan. Depending on the fees, it may not be financially viable if the costs outweigh the benefits.

To learn how to calculate a simple interest bi-weekly mortgage, read on below.

Simple interest bi-weekly mortgage example

If you pay $1,500 per month for your mortgage repayment, you will pay $18,000 per year. 

If you change to bi-weekly payments, you will pay $750 every two weeks. That would equal 26 payments in a year, a total of $19,500.

Compared with the monthly repayment, the extra payment from the bi-weekly schedule leads to an additional $1,500 repayment over 12 months. This will add up over the full mortgage loan term and reduce the principal loan balance sooner. As interest is calculated based on the principal balance, this will result in lower interest being charged.

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