Despite the fact that you were able to save money for the down payment (or even not, it depends) there are still a lot of years ahead of you to pay your mortgage. When signing the documents you will need to choose biweekly mortgage payments vs monthly. This choice depends on your desires, whether you want to pay your mortgage as soon as possible and forget about it like it was a bad dream or you want to secure your everyday life so your monthly financial burden must not rise.
Before you decide that you can approximately calculate how much money you will pay as your mortgage percent. Percents also depend on your type of payments and other nuances written in your contract. So today we will regard the most popular ways to pay your mortgage, give you useful tips and try to answer your frequently asked questions that pop up in your mind when you think about the mortgage.
How to Pay Your Mortgage ASAP
Before discussing biweekly mortgage payments vs monthly, let’s talk about other options that can also help you to pay your mortgage faster and without any visible consequences.
No Closing-Cost Refinance
It is one of the options. What is no closing-cost refinance? Nowadays it is a very popular custom to refinance your house, and maybe you have already refinanced your house. So what does it actually mean? Why do people raise their eyebrows and wonder about this? Well, if we take a look at the details of all mortgage transactions we will understand that they differ from country to country and also from one bank to another. All mortgages have several key components:
- Mortgage Rates: The interest rate applied by the banks for mortgages
- Other Fees: Remaining expenses beyond those paid by the customer. You can find fees such as brokerage fees or origination or closing costs.
- Down Payment: The amount of money the customer has to put down on the closing. It can be used to buy down mortgage rates or for some other reason, that the customer wants to use it in some other way.
- Mortgage Term: Usually 30 years-long period of time during which you will pay off your mortgage according to your bankruptcy code or credit score.
- The process of paying off a mortgage by installments Loan-To-Value Ratio (LTV): It is a ratio between principal and value. When buying a house it is usually 85% but not more than 95%. So this is 5% to 15%. LTV stands for loan-to-value.
NCCR is an option that affects your payments because it is a type of refinancing when you take a new mortgage but without paying closing costs or different fees in other words. But you still will need to pay this money in any way, unfortunately. And they can be added whether to your mortgage balance or your interest rate.
This way is good for those who want to live in the house for several years. In this case, they will save a lot of money on fees and interest rates and after selling a home will have benefits. But if you want to live your whole life in this house it is better to try another way because in this case, your payments are higher as if they were in a regular mortgage.
If you think about it, 20% is not that much, especially if we are talking about discounts in the shop. So you can use the 20/20 prepayment option for your advance if you can afford it. It works as all in this world works — on money. It helps you to pay your mortgage much faster but by adding up to 20% to your existing payment or adding the same percentage to the annually paid value of your original principal.
Mortgage Payments Types – Biweekly Mortgage Payments vs Monthly
Today’s mortgage payments are very diverse so you can choose the one that is the best for your type of payment.
Biweekly Mortgage Payments
This type of payment is also called “twice a month” or just BAM. It is an advantage that people have been using for many years now. Bi-Weekly payments can be used with all types of mortgages, including FHA, VA, USDA, Conventional loans, and even the HARP Refinancing program works with bi-weekly payments as well! There are another two types of payments: “every other week” and “two times a month”.
How Biweekly Payments Work
Every month you will pay a little less as a mortgage percent, equivalent to the principal paid in the previous month. So instead of paying your current mortgage balance by the whole month, you will pay only half of it. Then you will pay off the same volume of payment twice a month until your equity reaches zero so it is very convenient from the point of view of money. But this way works best if you have insurance on both sides – because then you will be sure that you have enough money for everything that might happen, and a little margin left after insurance to use for ordinary expenses that do not count as mortgage payments.
Monthly Mortgage Payments with Biweekly Tenure
This is the same as bi-monthly mortgage payments (BBMS) but only different in time. Instead of paying twice a month, you will pay your mortgage once a month and then every two weeks. It differs from bi-weekly mortgage payments in one aspect: you will pay twice a month but not for half of the total market value, only for half of the mortgage balance.
Another advantage is that this way can be used by everyone because it does not require an extra payment each month, all you need to do is to make bigger monthly payments!
Accelerated Bi-Weekly Payments
While this payment option is not very common and can be used by people with very good credit scores, we still want to mention that it exists and give you some useful information. The accelerated payments are calculated as if you would pay for 8 months a year instead of 12, that is why it is more expensive, but the good point of this type of accelerated bi-weekly payment is that payments are made on time every month, even if the payment due date passes. So this way gives you some kind of extra security in case there will be any trouble with your budget.
Accelerated Weekly Payments
This payment option can be used and is made in one bimonthly cycle but with a different way of calculating the payments. So if you make bi-weekly payments, you may change it to accelerated payments and vice versa. You will still pay an extra per length of time, but you will always pay on time. This way can work very well if you have many other bills to pay every month, because it will only make little needed changes to your current schedule of payments, so it is very advantageous for people with jobs or families to keep an eye on their finances.
Biweekly Mortgage Payments vs Monthly: FAQ
What’s an amortization schedule?
An amortization schedule is a list of scheduled payments designating the amount of each payment, the date it’s due, and the remaining balance. Amortization schedules are usually used to help consumers understand what their mortgage payments consist of, including principal and interest that goes towards repaying their loan.
Typically, there are two types of payment that make up a mortgage payment: interest and principal. Interest is typically calculated daily whereas principal is calculated on an annual basis. An amortization schedule allows you to see how much you have borrowed in total as well as how much your loan consists of in terms of both the interest rate and the amount being paid toward your total debt.
What is a mortgage term?
A mortgage term is the amount of time that a borrower has borrowed a loan from a lender. For example, if the borrower had a 30-year mortgage term, it means they would have to make payments for 30 years. Depending on how long of a mortgage term the borrower chooses to take out, their monthly payments will vary.
A longer-term mortgage will usually result in smaller monthly payments because it is spread out over a longer period of time. The opposite is true for a shorter-term loan. So usually it takes 20-25 years to pay off a mortgage in Canada.
Do you save more interest with bi-weekly payments over monthly payments?
This is a very popular question and it has a simple answer – yes! The more time you have to pay the more interest you will save. You can always try to find a mortgage that works best for your current financial situation. In some cases, it may be worth it to take out a mortgage with bi-weekly payments so you can have more time to pay off your loan or have enough extra cash in your pocket for other things.
What is the difference between the Advance payment from FHA and from VA?
FHA Loans (Federal Housing Administration) is designed for low to moderate-income (and often limited documentation) borrowers. They were given this designation to help stimulate the housing market during the Great Depression and continue to do so today. FHA loans are issued with lower initial credit scores than conventional loans with down payment requirements that range from 3.5% to 20%.
The first thing to remember about an FHA and a VA is that they are different programs. So there are huge differences in how they work, who can apply for them, etc. So they are mutually exclusive. There are many details to the interest rates, but here are the most important differences:
Advance payments are used in FHA, VA, and HARP programs.
VA program is a program designed to allow eligible veterans to get a VA home loan. It offers a special 1% interest rate but offers a 100% no-documentation loan. So this program is only available to veterans that have served in the military since 9/11.
They allow you to make extra payments for a year at a time upfront, at whatever interest rate is available at that time. This is very helpful if you can afford to pay more than on monthly payment right away because you will only charge the available interest rate the first year. So instead of losing money on interest during that first year, you will actually save some on this advance payment.
An advance payment is one thing that does not come into play for HARP. A HARP loan can be seen as having a relatively small monthly payment, but there is still interest assessed with every payment. So the interest you save over the term of the loan may not be worth it in terms of lost interest.
Another thing that is different about VA and FHA loans is that FHA loans are more restrictive when it comes to who may apply for them. There are some additional requirements on income limits, asset limits, etc. if you are applying for an FHA loan. If you are applying for a VA loan there are no income limits or asset limits.
Biweekly Mortgage Payments vs Monthly: Conclusion
There are a lot of different types of payments and additional programs. Hope we have managed to help you understand which option is better biweekly mortgage payments vs monthly. All of them were created not only to enrich the banks but also to help you finally live separately from your parents in your own house.