You have just borrowed $250,000 with a fixed-rate, fully amortized mortgage loan. The interest rate on the loan is 6% and the loan features a 30-year term and requires that 2 points be paid at closing. The loan requires monthly payments.

Some individuals will choose to make bi-weekly mortgage payments. That is, they make a payment for half of the monthly payment every two weeks.

1) How long will it take the loan to be repaid with bi-weekly payments?

2) How much interest will be paid over the life of the loan with bi-weekly payments?

3) Why do bi-weekly payments shorten the period until repayment and reduce the total interest paid?

Hints for this:

• Setup an amortization table with bi-weekly payments. The payment amount will be half of the payment shown in #1 above. The interest expense will be calculated using a bi-weekly interest rate; that is, 6%/52 weeks per year x 2 weeks per period = bi-weekly interest rate.
• Copy the amortization table until the point where the balance drops below zero this will be your last payment. Adjust the payment in this month until the ending balance equals zero.