Twenty-six half-payments make thirteen monthly payments a year. The thirteenth does the work; the two-week rhythm is worth very little.
Biweekly mortgage payments save money because 26 half-payments a year add up to 13 monthly payments, not 12. On an illustrative 300,000 loan at 6.5 per cent over 30 years, paying 948.10 every two weeks instead of 1,896.20 a month saves 88,122 of interest and pays the loan off 5.8 years early. Almost all of that comes from the extra payment: paying the same yearly amount every two weeks saves only 991.
Worked in full in Personal Finance for Beginners by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
The biweekly plan is sold as a clever trick of timing. It is mostly a disciplined way of paying one extra monthly instalment a year. Knowing which part does the work shows whether the plan, and its fees, add anything at all.
| Input | Value |
|---|---|
| Loan amount | 300,000 |
| Interest rate, fixed | 6.50% |
| Term | 30 years (360 payments) |
| Monthly payment | 1,896.20 |
| Biweekly payment (half the monthly) | 948.10 |
The biweekly case assumes the lender applies each half-payment to the loan when it arrives, with interest charged on the balance every two weeks. Not every lender does; the last section covers what happens when they do not.
Payment = P × r ÷ (1 − (1 + r)−n)
With P = 300,000, r = 6.5% ÷ 12 and n = 360, the payment is 1,896.20. In Excel: =PMT(6.5%/12, 360, -300000). Over 30 years you pay 682,633, of which 382,633 is interest.
The monthly payment formula is the same one used for a car loan or a personal loan; only the size and the term change.
Half of 1,896.20 is 948.10, paid 26 times a year: 24,650.65 a year against 22,754.45 on the monthly schedule. The difference, 1,896.20, is exactly one extra monthly payment, and all of it goes to principal.
Number of payments: =NPER(6.5%/26, -948.10, 300000) returns just over 627, so 628 payments, about 24.2 years
Interest over the life of the loan falls to 294,512. The saving is 382,633 − 294,512 = 88,122, and the loan is gone 5.8 years early.
| Schedule | Paid per year | Years to repay | Interest | Saving |
|---|---|---|---|---|
| Monthly, 1,896.20 | 22,754.45 | 30.0 | 382,633 | 0 |
| Biweekly, same yearly amount (875.17) | 22,754.45 | 30.0 | 381,642 | 991 |
| Biweekly, half-payment (948.10) | 24,650.65 | 24.2 | 294,512 | 88,122 |
| Monthly plus 158.02 extra | 24,650.65 | 24.2 | 295,377 | 87,256 |
Paying the same yearly total in 26 instalments instead of 12 saves 991 over 30 years: money arrives a little earlier, so slightly less interest accrues. That is the timing effect, and it is small. Adding one-twelfth of a payment, 158.02, to each monthly instalment saves 87,256 and clears the loan in the same 24.2 years. The extra payment is the whole story; the biweekly rhythm adds 866 on top.
A single extra payment of 1,896.20 once a year, made at each anniversary, does almost as well: 83,985 saved and the loan repaid in 24.3 years.
The saving scales with the loan and grows with the rate, because a higher rate means more interest for each extra payment to avoid:
| Rate | 200,000 loan | 300,000 loan | 400,000 loan | Years saved |
|---|---|---|---|---|
| 5.0% | 34,328 | 51,492 | 68,656 | 4.7 |
| 6.5% | 58,748 | 88,122 | 117,496 | 5.8 |
| 7.5% | 80,198 | 120,297 | 160,396 | 6.7 |
On a 15-year loan the effect is much smaller. The payment is already 2,613.32, interest is 170,398 in total, and biweekly payments save 23,865 and 1.8 years. The shorter the term, the less interest there is left to save.
Some biweekly programmes are run by third parties, not the lender. They collect your half-payments, hold them, and pass a single monthly payment to the lender, with the extra sent once or twice a year. Two things go wrong.
Three terms decide whether any of this works: whether extra payments are applied to principal straight away, whether the loan carries a prepayment penalty, and whether the arrangement can be stopped at any time. Monthly plus one-twelfth, or one extra payment a year, needs no programme at all.
Making the extra payment is a choice about cash flow as much as interest. It ties up 1,896.20 a year, which is why general guides place it after an emergency fund and after higher-rate debt, the same order in which sizing the emergency fund comes first. This is an illustration of the arithmetic, not advice for any individual situation: the rate, the term, tax treatment and other debts all change the answer.
Biweekly payments work because they add one monthly payment a year: 88,122 of interest saved and 5.8 years off a 300,000 loan at 6.5 per cent. The two-week rhythm itself is worth 991. Where a lender accepts a twelfth extra with each payment at no charge, that achieves almost the same result, 87,256, without programme fees. Personal Finance for Beginners covers getting out of debt step by step, and the free workbook for the book puts every debt on one page.
Yes, but because of the extra payment, not the timing. Twenty-six half-payments of 948.10 are 24,650.65 a year, one monthly payment more than the 22,754.45 of a monthly schedule. On an illustrative 300,000 loan at 6.5 per cent, that saves 88,122 of interest. Paying the same yearly total every two weeks saves only 991.
Slightly. On the illustrative 300,000 loan at 6.5 per cent, biweekly half-payments save 88,122 and repay the loan in 24.2 years; one extra 1,896.20 payment at each anniversary saves 83,985 and repays it in 24.3 years. A plan with a 395.00 enrolment fee and 2.50 per debit costs 1,965, which closes nearly half of the 4,137 gap.
Between about four and seven years at common rates, illustratively. On a 30-year loan, biweekly half-payments cut 4.7 years at 5.0 per cent, 5.8 years at 6.5 per cent and 6.7 years at 7.5 per cent, whatever the loan size. On a 15-year loan at 6.5 per cent the cut is only 1.8 years.
This article is one calculation from Personal Finance for Beginners. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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