Split monthly mortgage payment a bad plan

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Dear Dr. Don,
Is splitting my monthly mortgage payment in half and paying it on the first and the 15th of each month helpful in reducing the principal and shortening the loan term? I want to reduce both without having to make additional payments. Will this method help?
— Kayla Curtailer

Dear Kayla,
Sorry, your plan won’t work. Lenders typically won’t let you do it, and there’s no real benefit from it either. Mortgage interest is paid in arrears, meaning this month’s mortgage payment covers last month’s interest expense. Splitting the payment this way actually increases your interest expense because the lender is waiting to get paid last month’s interest.

A biweekly mortgage plan can save interest expense and shorten the mortgage term. With a biweekly payment, you make a payment every two weeks, and that payment is half of a monthly mortgage payment. With 52 weeks in a year, you wind up making 26 biweekly payments, which is the equivalent of 13 monthly mortgage payments. Your first and 15th approach only has you making 24 payments, equivalent to 12 monthly mortgage payments.

I’m no fan of biweekly mortgages. You can do as well on your own by making additional principal payments over the year equal to that 13th payment. You don’t need to take on the added expense of a biweekly mortgage and by not making the payment mandatory, you retain the ability to skip an additional principal payment if money is tight that month.

If you want to pay off an existing loan faster, the best way to do it is to make additional principal payments.

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