A bi-weekly loan is a fixed rate mortgage set up in a
fashion similar to a standard 30 year conventional loan. Both interest
rate and payments are fixed. However, payments are made every two weeks
instead of every month. Each payment is equal to half of what the
monthly payment would be for a fully amortized 30 year fixed rate
loan.
Bi-weekly
loans offer a significant savings over the life of a loan. For example, if
a $70,000 loan at an interest rate of 10.5% is paid on a bi-weekly
schedule, instead of monthly payment plan, the borrower would save
approximately $60,000 in interest. Because payments are made every two
week (not twice a month), 26 payments are made each year. As
interest is calculated on the remaining balance, this provides a rather
large interest savings. Bi-weekly loans are generally paid off in
approximately 20 to 21 year, instead of 30
years.
Although bi-weekly loans have been
available for same time, especially in the Northeast and Midwest, they
have not been widely promoted by lenders because of the increased
servicing costs associated with handling 26 payment instead of 12 payments
per year.
