A bi-weekly amortization schedule is a loan repayment schedule based on payments made every two weeks. People can save on interest in the long term by paying every two weeks instead of monthly, and sometimes incentives are offered to borrowers accepting loans with this type of schedule. When applying for a loan, it can be helpful to use a loan calculator to see how much will be paid over the life of the loan with different interest rates and repayment schedules.
In a bi-weekly amortization schedule, people make 26 loan payments every year. The scheduling of the due dates varies, depending on policies at the loan originator. Each payment is split between principal and interest. At the start of the loan, people pay more interest, and as they pay down the loan, the interest declines and they start paying more on the principal, until the loan is completely paid off.
A typical bi-weekly amortization schedule determines how much people need to pay every week to fully repay the loan and cover the interest within the lending period. With a five-year loan starting on 1 January, for example, the loan schedule assumes that 131 payments will be made. This is done with the assistance of a computer at most lenders today, although it is possible to calculate a bi-weekly amortization schedule by hand. Mortgage calculator tools can be found online to help people figure out the differing types of repayment schedules and find the one more advantageous to them.
By paying bi-weekly, people pay less in interest and may be able to pay off their loans more quickly. The tradeoff is that they pay more per year than people making monthly payments. For people with a tight budget, making payments on a bi-weekly amortization schedule may not be a workable option for their needs.
Some people choose to repay loans more rapidly by applying more money than the minimum to their loan payments. Lenders can deal with this in two different ways. Most take the amount off the end of the loan, making the total term of the loan shorter. Others may offer people the opportunity to skip the next payment due or to make a partial payment, depending on how much they overpay. People in the process of applying for loans may want to ask if there are prepayment penalties, and if they are allowed to prepay their loans, they should see how the lender handles extra payments.