One of the popular ways to save money on mortgages is to use what is known as the biweekly mortgage payment plan. With the biweekly mortgage payment plan the borrower makes payments on his mortgage every two weeks, instead of once a month. The biweekly payment is one-half of the monthly payment. So, if you converted from a monthly plan to the biweekly plan and you had been paying $2,000 a month for your principal and interest, you would now be paying $1,000 every two weeks. There is no doubt that this will save you money. By using the biweekly mortgage payment plan, you'll pay off your loan much earlier than you would have if you continued to pay monthly. Typically, a biweekly plan will pay your mortgage, in full, 7 to 10 years earlier, on a 30-year mortgage, than a monthly plan will.
At first glance, it looks like the biweekly plan is magical. In reality, however, there is nothing magical about a biweekly mortgage payment plan. The reason a borrower is able to pay off his mortgage sooner with a biweekly plan, is because he is, actually, making additional principal payments. In the example above, where a $1,000 payment is made every two weeks, $26,000 is being paid toward the mortgage every year. This is because, quite simply, there are 26 two-week periods in a 52-week year. With the regular $2,000 per month plan, $24,000 is being paid per year.
The lender enters these numbers into a mortgage calculator to find the mortgage payment. You can find mortgage calculators that are free to use online. All you'll need are the numbers for each of these five factors to do your home mortgage loan payment.
Potential homeowners' number one concern when buying a home is if they can afford the mortgage payments. Most people know that there will be other costs added to the mortgage payment besides the price of the home. The five factors to consider when calculating a mortgage payment are principal, interest, taxes, insurance, and term.
The term is the most flexible factor in calculating a mortgage payment. The term can be 30 years or longer making the monthly payments smaller, or it can be a 15 or 20-year term, making the payments larger, but also paying off the mortgage faster.
This monthly payment formula is easy to derive, and the derivation illustrates how fixed-rate mortgage loans work. The amount owed on the loan at the end of every month equals the amount owed from the previous month, plus the interest on this amount, minus the fixed amount paid every month.
The lender requires insurance on the home in case of loss due to fire or other catastrophe. If the customer makes less than a 20% down payment, he must also buy private mortgage insurance. This pays the bank
Private mortgage insurance is typically required when down payments are below 20%. Rates can range from 0.5% to 6% of the principal of the loan per year based upon loan factors such as the percent of the loan insured, loan-to-value (LTV), fixed or variable, and credit score. The rates may be paid in a single lump sum, annually, monthly, or in some combination of the two (split premiums). In the U.S., payments by the borrower were tax-deductible until 2010.
Now, let's run the numbers on this $2,000 a month mortgage and see what happens when we convert to a biweekly payment plan. With a thirty-year mortgage at 7.5 percent interest, our borrowed amount is $286,035.25. With a borrowed amount of $286,035.25 at an interest rate of 7.5 percent and a $2,000 a month payment, you would save $114,697.00 by converting this mortgage to a biweekly payment plan. This seems astounding! Doesn't it?
A mortgage is basically a loan which is secured against your home. In return for a loan to help buy your home as part of your mortgage agreement you agree to repay the loan and any interest over a set term. If for any reason you are unable to make repayments the mortgage company have the right to reposess your home to recover their money.
