Is it better to make your mortgage payments weekly, every two weeks, or monthly? - hypotheque

You have frequently heard it said that you are wiser to make mortgage payments once a week or every two weeks.
How does this strategy impact your payments? - hypotheque

To answer this question, you have to look at the two different ways of making these payments:

1. accelerated weekly payment
2. minimum weekly payment

The method used most often is the accelerated weekly payment. This is the monthly payment, divided by 4, so what you are really doing is making more than 4 monthly payments, since there is a bit more than 4 weeks in each month. This is the accelerated payment method because there are an extra 4 payments in each year, so this increases the number of payments you are making against your mortgage (prêt hypothecaire) balance.

The next method is the minimum weekly payment in which you make the minimum payment that you can on the mortgage until it is paid off during its amortization period.

It is evident that the savings from each of these two mortgage payment (prêt hypothecaire) methods is not alike. The minimum weekly payment only increases the frequency of the payments from 12 times a year to 52 times per year, while the accelerated weekly payment increases not just the frequency of payments, but also adds 4 additional payments.

Let’s look at the conclusion of my studies on mortgage payments for these two cases.

The minimum weekly payment

On a $200,000 mortgage, with 5.4% interest and an amortization period of 25 years, the savings is $1,294.12 in comparison with a monthly payment. The higher the interest rate, the higher the savings, by a large margin - hypotheque. An interest rate of double that amount would give a savings that is 7.08 times larger.

The home owner will have a 43% savings if he pays his loan once a week instead of once every two weeks. The rate of interest is not affected by this.

How is this possible?

The explanation is not complicated, but nevertheless difficult to explain. Since there is less time between each payment, xome part of the capital of the loan (prêt hypothécaire) is being paid off a few days earlier each time. This therefore reduces the total interest on the loan, since there is a lower balance for the interest to be charged on. This savings may appear small on a week by week basis, but the overall savings is quite large.

What can we conclude from this? The more payments you make on your mortgage, the more you will save on your mortgage, without at all increasing payments. So, if it is at all possible, make your payments weekly, or at least every two weeks - prêt hypothécaire.

The accelerated weekly payment - Summary:

1. The accelerated weekly payment increases payments by $23.25 a week on a mortgage of $200,000 amortized over 25 years with an interest rate of 5.4%.

2. The home ($200,000) will be paid off in 1,107 payments, or 21.3 years.

3. The savings will be $28,173.78 (you can see the calculatons at the end of the article)

4. It will be better not to make accelerated payments if you have a fixed or guaranteed investment which earns 7.52% per year before taxes.

It is important to choose the right payment method for your mortgage, but the most important thing of all is to choose the best mortgage strategy.

Notes : If someone buys a home for $200,000 (with a rate of 5.4%) and pays it once a month ($1,209.16 a month), he will have paid $362,749.83 after 25 years ($200,000 plus $162,749.83 in interest); on the other hand, with accelerated weekly payments ($302.29 per week), he will have paid $334,576.05 ($200,000 plus $134,576.05 interest) in 1,107 weeks our 21.3 years. This is a savings of $28,173.78 ($362,749.83-$334,576.05) to pay the same mortgage.

Article Source: http://www.christiannotepad.com

Gregory is an Accredited Mortgage Professional (AMP). To get more information on mortgages - prêt hypothecaire, please visit: Pret hypothecaire