How to Convert Monthly Payments to Biweekly Payments
If you have a traditional monthly loan with fixed interest rates and payments, you can often save interest and pay off your loan faster by switching to a biweekly payment plan.
Under a biweekly mortgage, you pay half of a monthly payment every two weeks. Since there are 26 two-week periods in a year, this is equivalent to making 13 full monthly payments per year instead of 12. The result is that you pay down your mortgage faster, thereby accruing less interest.
To figure out how long it takes to pay off a loan with a biweekly plan and how much money you will save, you can either use the formulas and examples below, or use the convenient monthly-to-biweekly converter on the left.
Just enter the original loan term in years, the annual interest rate as a decimal (not as a percent), and either the amount of your monthly payments or the principal. The calculator will show you how much money and how many years a biweekly mortgage can save.
Computing the Number of YearsTo compute the number of years when converting a monthly mortgage to a biweekly mortgage, you must know the number of years of the original monthly mortgage, N, as well as the annual interest rate, R, as a decimal. (For example, a 6.5% interest is equal to 0.065 as a decimal.) The number of years in the biweekly mortgage, B, is given by the equation
B = [ ln(13*(1 + R/12)12N) - ln(12 + (1 + R/12)12N) ]/[ 12*ln(1 + R/12) ].
The function ln() is the natural logarithm. For instance, suppose your monthly mortgage is for 30 years and your interest rate is 7.2%. The variables are N = 30 and R = 0.072. Then the number of years in a biweekly mortgage is thus
B = [ ln(13*1.006360) - ln(12 + 1.006360) ]/[ 12*ln(1.006) ]
= [ ln(111.9996) - ln(20.6154) ]/[ 0.071785 ]
= 23.58 years, or 23 years and 7 months.
This means you can shave more than 6 years off of your loan.
Figuring Your Interest SavingsTo figure the amount of interest saved with a biweekly mortgage, you take the total interest paid with a monthly plan and subtract the total interest paid with a biweekly plan. The difference is your savings.
To compute the total amount of interest paid on a monthly mortgage, you need to know the dollar amount of your monthly payments, M, the principal, P, and the total number of years, N. The interest formula is 12N(M) - P.
To compute the total amount of interest paid on a biweekly mortgage, you need to know the dollar amount of your biweekly payments, M/2, the principal, P, and the biweekly number of years, B. The interest formula is 26B(M/2) - P, or equivalently 13BM - P.
The savings formula is
Savings = [12NM - P] - [13BM - P], or
Savings = M(12N - 13B)
In the reduced form, you don't need the variable P.
For example, suppose your monthly payments are $800 for 30 years and your biweekly payments are $400 for 23.58 years. Your interest savings are
Savings = $800(12*30 - 13*23.58)
© Had2Know 2010