Dreaming is free, but making dreams come true often isn’t. When you find the home of your dreams, chances are, you’ll need a little help paying for it. For most homebuyers, this help comes in the form of a mortgage, a home loan in which a bank or other lending institution finances the difference between the sale price of your home and your down payment on the home. Over a period of time, you repay the lending institution at regular intervals. Interest collects on the amount you have yet to pay off, so the money you eventually repay the lending institution is a combination of principal and interest.
With each percentage of your loan you pay off, the home becomes that percentage “yours.” Until you have paid off 100% of the loan, plus interest, your lender technically “owns” the percentage of your home not yet paid off.
Of course, borrowing money from a lending institution isn’t quite the same as the buddy who lends you a couple of hundred to hold you over till payday, telling you to pay back when you can. Your lending institution will likely set up a repayment schedule so that you can repay your loan at regular intervals. Some loans have a specific time period, called an amortization period, by which you must pay off your mortgage. For example, many new homeowners commit to a thirty-year amortization period. Throughout this period, they are constantly making regular payments to pay off their mortgage.
The type of repayment schedule depends on the loan. The three most popular repayment schedules are:
Monthly Twice-monthly Bi-weeklyThe setup for monthly and twice-monthly schedules is very straightforward. Typically, the lender and the borrower will agree upon specific dates each month upon which the payment is due. Usually, if the borrower is on a monthly repayment schedule, the pay date will be either the first of the month or the last day of the month. If the borrower is on a twice-monthly schedule, the dates will usually consist of the first or last day of the month, plus a day in the middle (such as the 15th). Because there are 12 months in a year, a person who makes monthly payments will make 12 payments a year, while a person who makes twice-monthly payments will make 24 payments a year.
Bi-weekly schedules work just slightly differently. First of all, because there are 52 weeks in a year, a bi-weekly schedule means that a borrower makes 26 payments a year. Second, while monthly and twice-monthly schedules can usually conform to the same dates every year of the mortgage, bi-weekly schedule payment dates vary from year to year. Typically, a borrower will be required to make a payment something like “every second Monday.” So, while he or she may make a payment on July 12th one year, they will have to make that payment July 11th the following year.
Many financial experts point out that bi-weekly mortgage repayment schedules save you money in the long run. Why? Because a bi-weekly mortgage repayment schedule requires that you make more payments in a year than the other two types of repayment plans. The more payments you make, the quicker you will pay off your mortgage. The quicker you pay off your mortgage, the less you will collect in interest fees. In some cases, you can save thousands of dollars by choosing this type of plan (or switching to this type of plan, if your lending institution so allows and you already have an outstanding loan).
Let’s assume that two women, Paris and Nicole, each take out a $100, 000 mortgage. Each mortgage has a fixed interest rate of 7.875% and a 30-year amortization period. Paris pays monthly; Nicole pays bi-weekly. At the end of the 30 years, both women have paid off their mortgages. However, over the years, Paris has paid a total of $161,024.63 in interest. Nicole, meanwhile, has paid a mere $117,477.47. Nicole, then, has saved $43,547.16.
Few people have the ability to work out how much they would save on a bi-weekly plan in their heads. Fortunately, many companies with online capabilities realize this and have made numerous free online bi-weekly mortgage calculators available to the cyber-savvy public. Just type the words “bi-weekly mortgage calculator” into any search engine, and you’ll be greeted with a long list of cyber tools designed to help you calculate your bi-weekly options.
Many of online bi-weekly mortgage calculators strive to show you how much you will save should you decide to go bi-weekly. Thus, the first few calculators you stumble upon will probably ask for your current mortgage information, calculate how much you’ll pay in interest, then show you how much you would save should you make the big switch. These bi-weekly mortgage calculators will likely have some combination of the following fields:
Dollar Amount of your Mortgage/ Mortgage Amount/ Loan AmountHere, you enter the numeric value of the original amount you borrowed in order to pay for your home. Note that this calculator is only interested in the amount you borrowed. Some users make the mistake of entering the entire sale price of their home, including the down payment, which they already paid when they bought the home. The original loan amount is most likely the sale price of your home minus the down payment. If you cannot remember this number, check your mortgage agreement documents, and any other documents left over from the real estate transaction.
Interest RateThis is the percentage of interest you are paying yearly. Again, check your documents if you don’t remember the exact amount. If you have a fixed-rate mortgage, your interest rate stays the same from year to year. If you have an adjustable-rate mortgage, your interest rate fluctuates. Enter what you are currently paying as an interest rate, but beware that the savings the calculator quotes to you will be an approximation and can change if your interest rate changes.
Mortgage Term/ Term/ Term of your MortgageThis field requires that you put in the number of time you and your lender have agreed that it will take you to pay off your mortgage. Pay special attention as to whether or not you should express this time in months or years. Some calculators want you to use years; others want you to use months. If a bi-weekly mortgage calculator asks you to enter the term of your mortgage in months, all you have to do is multiply the number of years of your mortgage by 12 (the number of months in a year). So, a 30-year mortgage would translate into 360 months (30 x 12 = 360). The Calculator tool in the Start menu on your computer can help you with this task.
Current Monthly PaymentIf you are thinking of switching from a monthly payback schedule to a bi-weekly one, then a bi-weekly mortgage calculator with this field is for you. Enter the amount you currently pay per month.
Amount Already PaidIf you are considering switching your payment plan, then chances are, you’ve already made a few payments under your current plan. Enter the amount you have already paid off. The bi-weekly mortgage calculator will deduct this amount from the principal. If you have not yet made any payments, simply enter 0.
CalculateThis isn’t a field, but a button. Click on it, and the bi-weekly mortgage calculator will calculate how much you will save on your bi-weekly mortgage repayment plan. This amount will appear in the blank fields, described below. Remember, many of these calculators are designed to point out how bi-weekly plans can save you interest, so some bi-weekly mortgage calculators call this button, Calculate my Savings or How Much will I Save?
Interest Paid Under Current PlanSome calculators will include this field to emphasize how much you will save should you switch. Once you’ve hit the Calculate button, this field will fill in.
Interest Paid Under Bi-Weekly PlanAgain, some calculators include this field. Once you’ve pushed the Calculate button, the calculator will populate this field with a number substantially lower than the number in the Interest Paid Under Current Plan field.
SavingsThis field represents the difference between the interest you’d pay under a monthly plan and the interest you’d pay under a bi-weekly plan. It, too, will fill once you’ve clicked on the Calculate button. Use the information in this field to determine if the savings you’d incur under a bi-weekly plan are substantial enough to warrant a switch.
If you are already on a bi-weekly plan and want to know how much you’ll pay, calculators exist to help you, too. However, you may have to browse through search results a bit until you find one, since the majority of bi-weekly mortgage calculators are designed to entice people to make the switch. You can also try using an Amortization Calculator, which is designed for people with established plan who want to work out how much they will pay at each regular interval.
Note that most online bi-weekly mortgage calculators prefer that you use Arabic numerals, as opposed to Roman numerals, words, or any other form of expressing numeric value. As well, plenty of online bi-weekly mortgage calculators do not require that you put in a dollar sign ($) in front of the number; they have already done this for you. If your mortgage is in a currency other than American Dollars (such as Canadian Dollars, British Pounds or anything else), just enter the numbers anyway and ignore any $ or USD signs that may appear in front of the fields. The numbers will be the same, just in your own home currency.
