How the biweekly calculation works
Each period: interest = balance × annual rate ÷ 26; balance = balance + interest − biweekly payment
The monthly payment is the standard amortizing payment for your balance, rate and remaining term. The calculator then runs the loan in 14-day periods, 26 a year, charging the annual rate ÷ 26 each period, until the balance reaches zero. It runs the same loan with 12 monthly payments a year and compares total interest. Servicers that collect biweekly payments but apply them once a month credit interest differently; the savings then come almost entirely from the 13th payment.
Worked example
A $300,000 loan at 6.5% over 30 years has a monthly payment of $1,896.20. Paying $948.10 every two weeks clears it after 628 payments, about 24 years 2 months, and total interest falls from $382,633 to $294,512: $88,122 saved. If a program charged a $400 setup fee and $3 per debit, the fees would total $2,284 over the loan and the savings would not catch up with the fees until year 4.
Biweekly programs and fees
In May 2015 the Consumer Financial Protection Bureau sued a biweekly payment vendor that charged a setup fee of up to $995 and yearly processing fees of $84 to $101, alleging that consumers would pay more in fees than they saved in interest for the first several years. Before enrolling in any program, ask what it charges, whether it is run by your servicer or a third party, and when each payment is credited to your loan. Enter those fees above to see the break-even year.
Getting the same savings another way
- One-twelfth extra. Adding monthly payment ÷ 12 to principal each month also adds up to one extra payment a year. Model it in the extra payment calculator.
- One extra payment a year. A single extra payment each year, for example from a tax refund or bonus, gives similar savings.
- Match it to your paychecks. If you are paid every two weeks, a biweekly draft lines up with payday, but the other bills still need a paycheck each. Bill Organizer's paycheck budget calculator shows how much of each check goes to bills.
- Lower payment instead. If cash flow matters more than payoff speed, a lump sum and a recast lowers the payment instead.
Whether to pay a mortgage down faster depends on your rate, savings and other goals; the pay off or invest guide sets out the trade-offs. Results are estimates; your servicer's records are final.