Where the saving comes from
A monthly plan makes 12 payments a year. Paying half the payment every two weeks makes 26 half-payments, which is 13 full payments. The saving comes from that one extra payment a year, applied to principal. The calculator spreads it over the year: your payment plus one twelfth of it each month.
Monthly payment M = L × r ÷ (1 − (1 + r)^−n). Biweekly: M ÷ 2 every two weeks = 13 × M a year ≈ M + M ÷ 12 each month
L = loan, r = monthly rate (annual ÷ 12), n = months. Interest saved = interest on the standard plan − interest on the faster plan; net of fees = interest saved − program fees.
Example: a 30-year mortgage
$300,000.00 at 6.5% for 30 years.
- Monthly payment: $1,896.20; interest over 360 payments: $382,633.47
- Biweekly: half, $948.10, 26 times a year = $24,650.65, or 13 monthly payments
- The extra is $1,896.20 ÷ 12 = $158.02 a month, so the loan is paid off in 290 months (24 years 2 months), 5 years 10 months sooner
- Interest: $295,377.18, so $87,256.29 saved
Example: with program fees
The same loan, with a $995.00 setup fee and $100.00 a year.
- Fees over 24.17 years: $995.00 + $100.00 × 24.17 = $3,411.67
- Saving after fees: $87,256.29 − $3,411.67 = $83,844.62. The same extra payment made without a program would not have the fees.
Questions
Why does paying biweekly save interest?
Because 26 half-payments a year add up to 13 full payments, one more than the 12 of a monthly plan. The CFPB describes it as “effectively making one additional monthly payment per year” [1]. That extra payment goes to principal, so the loan is paid off sooner. Splitting the payment in two does nothing by itself.
Do I need a program to do this?
No. Adding one twelfth of your monthly payment to each month, or making one extra payment a year, gives the same extra principal with no middleman. Ask your servicer how to make sure extra amounts are applied to principal. Some servicers also offer a biweekly option of their own.
Do biweekly payment programs charge fees?
Some third-party programs do. In its complaint against one company, the CFPB described a setup fee of up to $995 and “between $84 and $101” a year in processing fees, and said the company kept the first extra payment as the setup fee [1]. Those are that company’s fees, not a standard. Use the fee boxes to see whether a program’s fees eat the saving.
How does the calculator model it?
As one extra monthly payment spread over the year: your monthly payment plus one twelfth of it, every month. Servicers apply biweekly payments in different ways, so a real plan can come out slightly differently.
Does it change my monthly payment?
No. The standard monthly payment is for the full term at your rate. The biweekly plan pays more than that in total each year, which is why it finishes early.
Does it include taxes and insurance?
No, only principal and interest. Enter the loan balance, not the home price.