Bi weekly mortgage calculator with extra payments excel

Use this free calculator to discover how much time and money you will save by making regular biweekly payments instead of monthly payments on your home. This calculator presumes one starts making biweekly payments at the onset of the mortgage. If you made regular monthly payments for a period of time before switching to biweekly payments and/or want to add extra funding to the payments, please use the advanced calculators here.

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Your $260,000.00 Home Loan Annual Amortization Schedule

Understanding the Basics of Bi-weekly Mortgage Payments

When homebuyers take out a mortgage, it’s usually paid in monthly installments. That’s a debt obligation you agree to pay once a month, which is usually for 30 or 15 years. Since it takes a long time to pay off, you must prioritize proper financial planning to meet timely payments. And if you manage your budget well, you can even pay down your mortgage early.

Most homebuyers choose fixed-rate mortgages (FRM) for the assurance of predictable payments. FRM payments are based on a traditional amortization schedule. This is a record that shows the exact number of payments you need to make by the due date. It also breaks down how much of each payment goes toward your principal (loan amount) and your interest charges.

For example, a 30-year FRM has 360 monthly payments spread across 30 years. For a 15-year FRM, that’s 180 monthly payments throughout 15 years. Because it’s a fixed payment schedule, if you factor in additional payments, you can actually reduce your payment time. We’ll explain how you can this below.

Besides monthly mortgage payments, you can choose a bi-weekly payment schedule. This payment method can cut years off your loan term. It can also save tens and thousands of dollars on interest charges. However, like all good options, bi-weekly payments also come with several drawbacks. Make sure to know the disadvantages before choosing this payment plan.

Here’s what you need to know about bi-weekly payments and how they work. We’ll detail their pros and cons, and how you can use this strategy to boost your mortgage savings.

What is a Bi-weekly Payment Plan?

When you choose a bi-weekly schedule, it means paying half of your monthly mortgage every two weeks. For example, if your monthly mortgage payment is $1,500, your bi-weekly payment will be $750. A monthly schedule only has 12 payments a year. In contrast, there are 52 weeks in a year, which is equivalent to 26 bi-weekly payment periods. Hence, a bi-weekly payment plan creates an additional 13th monthly payment.

Making that extra 13th payment is crucial if you intend to save and prepay your mortgage. Consider taking a bi-weekly plan if this is one of your main financial goals. A bi-weekly plan is a viable payment strategy that helps pay off your mortgage faster.

Note that a bi-weekly payment is due every two weeks, not twice a month. There’s a difference. Certain months in the calendar have 30 or 31 days, while the month of February only has 28 days. Because of this irregularity, there are times when you’ll need to make three bi-weekly payments in a month. So be prepared for that third payment.

If you only make two payments a month, that’s just 24 bi-weekly periods equal to 12 mortgage payments. This defeats the purpose of gaining an extra 13th payment. Understanding this distinction will help you manage your budget and avoid missed payments on a bi-weekly plan.

Before you make extra payments, ask your lender about prepayment penalty. This is a rule that usually applies for the first three years of a mortgage, which results in expensive charges. It’s counterproductive to any savings you make from extra payments. Many homeowners wait for the prepayment penalty period to end before applying additional payments.

When you take a conventional mortgage, you can negotiate for a loan without a prepayment penalty clause. Government-backed mortgages such as FHA loans, VA loans, and USDA loans also do not require prepayment penalties. You can pay off your mortgage early without worrying about expensive extra costs.

Calculating Savings with Bi-weekly Payments

To illustrate how bi-weekly payments work, let’s compare it with monthly payments. Using our calculator above, you can estimate the savings difference conveniently.

Let’s say you bought a house valued at $325,000 and you’re taking a 30-year FRM at 3.5% APR. To bypass private mortgage insurance (PMI), you made a 20% down payment worth $65,000. The calculator below also accounts for other homeownership costs such as real estate taxes, homeowners insurance, and HOA fees. The following table compares costs between monthly mortgage payments and bi-weekly payments.

Home Price: $325,000
Down payment: $65,000
Principal Loan Amount: $260,000
Rate (APR): 3.5%
Annual Real Estate Taxes: $3,500
Annual Homeowners Insurance: $1,000
Monthly HOA Fees: $300

According to the example, your regular principal and interest (P+I) payment is $1,167.52, while the bi-weekly payment is $583.76. Together with your other homeownership expenses, your monthly payment amounts to $1,842.52, while your bi-weekly payment will be $895.30.

With a regular monthly payment, your total interest cost will be $160,305.83. But if you make bi-weekly payments from the start of your mortgage, your overall interest charges decrease to $136,955.50. As a result, you’ll pay off your mortgage in 27 years and 2 months.

In this example, bi-weekly payments will remove 3 years and 10 months off your loan term. It also saves $23,350.32 on total interest costs. That’s a substantial amount of savings that can go to your emergency or retirement savings, as well as other important purchases or investments.

Next, given all variables are the same, what if you added an extra $50 or $150 to your bi-weekly payments each pay period? Let’s review the results below.

In this example, adding $50 to your bi-weekly payments reduces your interest cost to $119,177, saving you $41,128 in total interest charges. It also pays your loan early by 24 years and 6 months. Meanwhile, if you increase your extra bi-weekly payment by $150, your total interest charges will decrease to $105,110. This saves you a total of $55,194 in interest charges. Adding $150 to your bi-weekly payment cuts 7 years from your loan term, allowing you to prepay your mortgage in 23 years. If you have room in your budget for extra payments, consider this option to boost your savings.

Weighing the Benefits and Drawbacks

As we’ve shown above, savings on future interest payments is the primary benefit of a bi-weekly schedule. It also eliminates years off your loan term. And when you make extra payments on top of your bi-weekly payments, you’ll increase savings and cut more years from your payment term. Furthermore, it helps you gain home equity sooner. This allows you to obtain a home equity loan, which can fund major expenses such as future home improvements or even your child’s college tuition.

Bi-weekly payments are easy to budget if you receive your salary on a bi-weekly basis. Once you have cash coming in, you can prioritize paying your mortgage. The smaller payment every two weeks is also not as burdensome compared to a large monthly bill. A bi-weekly plan can also encourage you to be more responsible with budget planning.

Before obtaining a bi-weekly schedule, here are several drawbacks you should consider:

There Might Be Costly Enrollment Fees: While there are banks that setup bi-weekly payment plans for free, others may charge you expensive enrollment fees. Your best bet is to look for a bank that does not impose setup fees. This comes with a one-time cost that ranges from $300 to $400, plus small fees per draft. If you want to pay as you go, lenders may levy a monthly service charge between $4 to $9.

At first glance, extra fees do not seem much. However, let’s say you enrolled in a bi-weekly payment plan for a setup fee of $350, with a $1.50 charge per draft (if you have a 30-year term, that’s 720 bi-weekly payments). When you add it up, your fees will amount to $1,430. This is an extra cost you could have spent on your mortgage. If you choose the pay as you go option, you can imagine how high those fees add up.

Banks that do not have their own bi-weekly system usually require you to get third-party payment processing services. But be careful with these companies. Many of them may claim to process bi-weekly fees, but only hold on to your money. They only make monthly payments on your behalf. This negates the purpose of extra payments with a bi-weekly plan. If you must obtain a third-party payment service, make sure they are reliable.

It’s a Binding Agreement: Setting up a bi-weekly plan is a usually a permanent setup, which means it’s hard to reverse if you want to go back to a monthly plan. You can’t just sign up for a bi-weekly plan then change back to a monthly schedule. Be sure to assess your budget and financial goals thoroughly before you choose this payment plan.

There’s Shorter Time in Between: Having little time in between can be an issue if you’re short on funds. You risk missing payments when this happens. Thus, it’s important you have savings and room in your budget to commit to a bi-weekly plan. If you’re worried about forgetting payments, these are ideally setup as automated bi-weekly transfers. It’s a good way to ensure your mortgage is paid before you touch your funds.

Less Money for Debt & Important Expenses: Next, do you have large high-interest debt from credit card bills? If so, it’s wiser to settle them first. Your mortgage is tax deductible, while credit card debts are not. High-interest debts eat away your savings, so don’t take too long to pay them down. Moreover, if you have immediate expenses such as car repairs, home repairs, and childcare services, these should be your priority. Later on, you can dedicate extra mortgage payments when you have a little more room in your budget.

Less Money for Savings: Before you decide on a bi-weekly plan, assess your finances. Making extra payments on your mortgage means you’ll have less money for emergency savings and your retirement funds. Financial advisors recommend saving at least 6 months to a year’s daily expenses for emergency funds. If you haven’t built enough savings, prioritize this first.

Possible Prepayment Penalty: Talk to your lender about your mortgage’s prepayment penalty clause. Many conventional loans have this, which typically lasts for the first three years of a loan. Consider a bi-weekly schedule after the prepayment penalty period. Since a bi-weekly plan results in 13 annual payments, making that extra 13th payment can trigger the penalty. Expensive penalty charges can dwarf any savings you make from bi-weekly payments. You can still boost your mortgage even if you make extra payments after a couple of years on your mortgage.

Advantages & Disadvantages of Biweekly Payments

The chart below summarizes the pros and cons of taking a bi-weekly payment plan:

What If Can’t Take a Bi-weekly Plan?

Some homebuyers may have a hard time securing a bi-weekly schedule or prefer monthly payments instead of paying every other week. The good news is there’s a way to obtain the same effect as a bi-weekly plan without changing your schedule. You can actually make extra payments on your mortgage, specifically toward your principal.

To do this, take your monthly principal and interest payment and divide it by 12. The resulting amount is the extra payment you should add every month. This makes an equivalent of a 13th payment by the end of the year. For instance, if your monthly principal and interest payment is $1,200, divide this by 12, and the result is $100. Thus, you should pay an extra $100 per month on top of your regular monthly payments, bringing your monthly payment to $1,300.

Besides making extra payments, you also have the option to send a lump-sump extra payment by the end of the year. You can time this large payment with your work bonus or even your tax return. Paying a lump sum toward your principal helps reduce it faster, therefore decreasing your future interest charges. You can learn more savings strategies to prepay your mortgage by visiting our extra payment calculator.

When you make extra loan payments, tell your lender to pay it to your principal. If you don’t, some lenders may apply it to your interest by default. Moreover, others might also require extra fees for making principal-only payments. Inquire about this extra fee and consider if it’s worth the cost. Ideally, it’s better if you find a lender that does not impose extra fees on principal payments.

Is a Bi-weekly Plan Good For You?

The only person who knows is you. You know your family’s spending and savings habits, and your personal strengths and weaknesses. Are you disciplined financially, or do you just “wing it” and hope it all works out? A bi-weekly plan is a good way of forcing yourself to become more responsible with aligning your loan payments with your paychecks. You’re also a good candidate if you like the feeling of working down your debt as quickly as possible, especially if you get a paycheck every two weeks.

The genius of the bi-weekly plan is that it shadows your paycheck like a hawk. Since most Americans receive their salary checks every two weeks, lenders will schedule your automatic withdrawal to be taken from your bank account the day after you receive your paycheck.

If you like the idea of extinguishing your mortgage faster with less interest cost, by all means discuss your bi-weekly options with a professional financier. Just don’t forget to consider the drawbacks when you sign up for a bi-weekly plan.

In Summary

An accelerated bi-weekly payment plan is a strategy that helps prepay your mortgage and increase your interest savings. Under this schedule, you pay half of your monthly payment every two weeks. Since there are 52 weeks in a year, this results in 26 bi-weekly periods. It creates the equivalent of a 13th extra monthly payment annually, which reduces your principal as well as future interest charges. As long as you make consistent bi-weekly payments, you can remove several years off your loan term. And if you make extra payments on top of your bi-weekly payments, you can further boost your savings and prepay your loan earlier.

On the downside, there are challenges to securing a bi-weekly payment plan. Though some banks offer free bi-weekly arrangements, others may require expensive fees. This negates savings you make from extra payments. Next, you might have to wait out your prepayment penalty period. This is another costly fee that can cancel savings. So before you choose a bi-weekly plan or any make extra payments, make sure to ask about prepayment penalty rules and ensure you will not incur a major fee by paying off your loan early.

Furthermore, consider your financial disposition and goals. Do you have enough funds to prioritize extra mortgage payments? Perhaps you have high-interest credit card debt that you need to settle first. If you have urgent expenses such as car or home repairs, you likely have to prioritize those first. Lastly, you should make sure you have enough emergency funds before deciding to prepay your mortgage. Cover all your bases first to keep your family secure. Later on, when you have enough room in your budget, you can arrange for bi-weekly payments to pay off your mortgage faster.

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