A monthly loan makes payments once/month, or 12 times a year

A true biweekly loan makes payments every other week, or 26 times a year. If you look at the total amount paid on a once/month schedule vs a every-other-week schedule, you’ll end up actually making what works out to be one extra payment on the every-other-week schedule. That’s because each month is slightly more than four weeks. The monthly schedule would have only given you 12 payments, but the biweekly gives you 24 payments, plus 2 more, which is equivalent to that extra.

So for instance, if your monthly mortgage payment was $2000/month, then most cash loans lenders would agree that a biweekly payment plan could be set up such that you’d pay $1000, every two weeks. If you started that payment schedule on January 1st of any given year, at the end of that year you would have paid $26,000 towards the loan, rather than $24,000. That extra payment amount, put at least some extra money towards the principle. Do that year after year, and you’ll pay down the principle slightly faster than you would have if you’d stayed on a once/month payment.

But the savings would only approach the levels they’re talking about if a) you started this payment method right when you started the loan, and b) if you had a 30year mortgage vs a 15 year mortgage. I found their statement about saving that huge $100K amount very misleading, because that assumes a lot about the size of the original loan, the length of the mortgage, the interest rate and how quickly the homeowner begins the every-other-week payment schedule.

Another way to accomplish the same thing as the above, is to pay slightly more on the principle than your existing payment. For instance, if you paid $2200/month instead of the minimum $2000/month, AND ensured that the extra $200/payment went towards principle, you could accomplish that same accelerated paydown of your principle. The thing I like about that approach is that you can custom-tailor the extra according to your paydown goals, AND according to particular budget. Remember that for most loans, that monthly amount is your minimum payment. Very much like with credit cards, you can pay more than that if you choose to, any given month. HOWEVER, some loans apply extra amounts towards the interest or escrow if you don’t specifically apply it towards principle. And some loans don’t allow early payment at all. So check your loan for those details.

There are online calculators where you can experiment with how much money you can save by either switching to a biweekly payment schedule, and/or by paying extra principle each month. You can find those calculators by using a search term like “amortization calculator”.