Are biweekly mortgage payments done every 2 weeks or paying 1/12th extra with each month's payment?

Question

I may have confused myself. I am trying to create a spreadsheet to figure out the different payments for different loan terms and payment methods (biweekly and monthly) since the calculators I see on the web require me to reenter information for each possible change in interest, down payment, loan term, amortization etc.

I started out with this formula:

P = L[c(1 + c)n]/[(1 + c)n - 1] from the mortage professor

For the biweekly-payments, I made n = 26 * 30 = 780 vs n = 260 and made c = APR/26 vs APR/12 for monthly.

This is the math itself. However, after reading

With this payment method [biweekly], you pay $382 (half your monthly payment) every two weeks.

Rocket Mortgage

and

The only difference [with monthly payments] is that you structure your payments so that, instead of making one payment at the beginning of each month, you make half of one payment every two weeks.

The Mortgage Reports

and

The accepted answer (Noah's) here

I am not so sure if the method of paying every 2 weeks with n = 780 exists and would like to confirm so that I remove columns that pertain to this theoretical method.

I was also surprised when a mortgage broker in the US told me that he hasn't seen biweekly payments anywhere.

Answer 1

Presently the way bi-weekly payments are done for home loans is the monthly payment is calculated normally but the borrower pays half the payment amount every two weeks. Every month has two or three such payments, so when there are three you apply against principal as usual. Every year has 26 or 27 such payments depending on the calendar.

Bi-weekly is very uncommon these days. The idea goes back to a time when it was thought that aligning mortgage payments with the timing of paychecks would make for more predictable bills and reliable bill payment (most people are paid bi-weekly--non-exempt workers more so that salaried).

Upshot here is that to make a bi-weekly calculator you need to plug in the exact calendar and dates as you get a different answer depending on the exact dates in question. Bi-weekly will pay down faster regardless, but a given year will have either 2 or 3 extra principal payments, so you have to do the calculation the long way using exact dates. If you're in Excel you're going to have a row per payment and a test for each row to see if you're paying P&I or pure principal.

Answer 2

Both quotes seem to equate "biweekly" with "semimonthly", which are not the same. With biweekly payments, there are two calendar months each year in which you make three payments, not two.

If you want to compare a monthly mortgage to a biweekly mortgage, you would first have to compute your total payments for the year (monthly times 12), then divide by 26 to find your biweekly payment. For a semimonthly payment, it suffices to divide the monthly payment by 2.

Answer 3

First, I'd make sure your mortgage allows you to make such payments. Banks got wise to this method of dramatically reducing interest cost on a mortgage, and may of them put language into their loan documents prohibiting this.