As the name suggests, this calculator computes mortgage payments every other week. It works similar to the mortgage calculator, but the payments are calculated on a biweekly basis. So, if you get approved for a mortgage loan and plan to buy a home, this tool is right for you. It can help you get many useful estimates when it comes to questions concerning mortgage loans.
What can you learn in this article? In addition to calculating biweekly mortgage payments, you will also find out about mortgage-related matters like compound interest, payment frequencies, etc. You will also find answers to the following questions:
- Is it a good idea to pay your mortgage biweekly?
- What are biweekly mortgage payments and how do they work?
- How much can be saved through biweekly payments?
Once you learn how to calculate mortgage payments, you will need to consider using our mortgage amortization calculator as well. It allows you to compare various repayment scenarios based on the amortization schedule. But let’s deal with the biweekly mortgage calculator first.
What Are Biweekly Mortgages?
A biweekly mortgage is a loan in which the borrower makes equal payments every two weeks. The monthly payment for a biweekly mortgage is half of what it would be for a typical monthly payment. Biweekly mortgages are also known as “half-month” mortgages.
This type of mortgage is often used by people who can afford to make higher monthly payments but want to save money on interest. It allows borrowers to pay off their homes in less time than with a traditional 30-year fixed-rate mortgage.
Here are the main features and benefits of biweekly mortgage schedules:
- Bi-weekly patterns involve making a mortgage payment every two weeks.
- This strategy lets you pay your mortgage off early while saving money in interest.
- Instead of 12 payments, you’d make 26 with this model, meaning your payments will be smaller.
- As for the net effect of biweekly mortgages, think of it as the extra monthly payment for 12 months.
- While you will have to pay more each year, you’ll eventually benefit from it by yielding huge savings.
How Does It Work?
When collecting a mortgage loan, you will be provided with the interest rate as well as the amortization period or mortgage term. Then you will need to choose the most suitable payment frequencies option when paying off your loan. It will determine how many payments are made annually, providing that the loan will be paid off when your mortgage term ends. That’s how it works.
Typically, mortgage payments are made each month, meaning borrowers are supposed to make payments on a monthly basis due date. This results in 12 payments yearly. With a semi-monthly or bi-weekly payment frequency, you’d make a total of 24 payments a year, assuming that the payments are made regularly every 2 weeks. In order to save money on your mortgage payments by accruing less interest, you need to pay more frequently.
Considering that the year has 52 weeks, there would be 26 mortgage payments a year if you go with a bi-weekly frequency. As a result, there will be more payments than when choosing a standard monthly schedule. This means your loan will be paid off faster. It is equivalent to thirteen monthly payments, so you would get an additional monthly payment. That makes biweekly mortgages are beneficial to many borrowers.
What Is Compounding Frequency and How Does It Affect Biweekly Loan Payments?
Compounding frequency (also known as compound interest) tells how many times the principal loan amount is increased by the amount of outstanding mortgage interest. This financial concept is used to calculate the total amount of interest that has been accrued on an investment. It can be annually, semi-annually, quarterly, or monthly.
Compound interest is calculated by adding the interest that has accrued on the principal, plus any new deposits or investments, and then applying the same rate of interest to this figure. The formula for calculating compound interest is as follows:
A= P (1 + r/n) ^ nt
It offers lower monthly payments and an interest rate that increases over time. While the monthly payments are typically lower than those on fixed-rate mortgages, the total interest paid over the life of the loan could be higher. Borrowers can make extra payments on the principal and pay less in their early years when they are most likely to have higher incomes. This way, they are able to pay off their loan more quickly. Even so, they will always owe the same amount at the end of the loan.
However, this should not be taken for granted, as compounding frequency varies widely from country to country. The same is true for the compound period. For example, interest is calculated every month in the UK and the United States. In Canada, it is compounded every 6 months (semi-annual pattern).
Biweekly Mortgage Payments: How Are They Calculated?
Let’s say the loan amount is $150,000 and you need to pay it off in 30 years (the mortgage term), whereas the annual interest rate is 6%. When calculating your biweekly mortgage payment, you will need to go through the following three steps:
Step 1: Determine how many payments should be made
To get the number of mortgage payments, use this calculation:
Number of payments = mortgage term * (number of weeks in a year / 2)
In our case, there are 780 payments in total: No. of payments = 30 * (52 / 2); 30 * 26 = 780
Step 2: Compute the interest rate per payment (IRPP)
Your interest rate per payment will depend on the compounding frequency.
Interest rate per payment (IRPP) = (1 + annual interest rate/12) ^ (12/26) – 1
When calculated monthly using this formula, IRPP would be 0.23%; (1 + 6/12) ^ (12/26) – 1 = 0.23%
Step 3: Use IRPP to calculate the bi-weekly mortgage payment
Biweekly payments = mortgage loan * [IRPP * (1 + IRPP)number of payments/(1 + IRPP)number of payments – 1]
If the compounding frequency schedule is monthly, then it would be $414.52 in our case. So, for a monthly compounding frequency, the biweekly payments are $414.52 for the loan amount of $150,000.