This example applies to our online demo Time Value of Money Calculator. The C-Value! program for Windows works in a similar way and has a few more features. Note, our online demo TVM calculator is limited to calculations using interest rates between 2.0% and 8.9%
For greater detail about how values are entered into the TVM calculator, please see Example 1 - conventional mortgage or loan.
Background: One of the most popular conventional mortgages in the US has a thirty year term and is paid monthly. Some lenders offer a variation of this mortgage known as a biweekly mortgage. These mortgages save the borrower usually thousands of dollars in interest charges and result in the loan being paid off substantially faster. The reason these loans have gained in popularity is because the borrower notices very little difference in the payment amount. The biweekly mortgage requires that the borrower makes payments equal to one-half the monthly payment every two weeks. The result, of course, is that over the course of a year there will be twenty-six payments made (every other week or half of fifty-two weeks) which is equivalent to thirteen monthly payments.
To create a loan schedule using a biweekly accelerated technique, follow these steps.
Additionally, this example assumes that, the Compute Method is set to "Normal" and the Year Length is set to 360
NOTE: At this point you might want to view the amortization schedule via "Print Preview" and make note of the total interest paid ($456,217.88) and the date of the last payment (December 1, 2042). You can compare these to those produced with a biweekly loan after the next calculation
NOTE: When the amount of time between payments is equal to a compounding period there is no impact on the payoff as a result of compounding. That is, there is no additional interest as a result of unpaid interest. Thus setting the compounding to "Biweekly" when biweekly payments are made does not have a negative impact on the total amount of interest paid.
Back to the online Time Value of Money Calculator.