PAYMENT FREQUENCY – MORTGAGE STRATEGY
There are a lot of factors to consider when deciding how to pay off your mortgage debt, but the extra
One of the most
Choosing which type of payment to make will be a matter of convenience, but there are many advantages to paying more frequently than monthly. When you increase the payment frequency you reduce the principal faster, pay less interest and pay off your mortgage sooner. To understand the benefits and drawbacks of the different payment frequencies, let’s look at them in a bit more detail:
The most common way of paying a mortgage is with monthly payments typically on the 1st of every month. This is easy to remember if you are used to paying rent. Most lending institutions will let you make payments on a different date if that is more convenient for you
Semi-monthly payments are also pretty
Therefore, whether you pay $1,000 in monthly payments or $500 in semi-monthly payments, you’re still paying $12,000 per year. As a result, this option saves you very little money because you are paying the same annual
Again, we’re not looking at much of
A very small amount of savings are gained due to half of your payment being made early each month. The main reason for choosing this option would be the convenience of matching your payment to your
BI-WEEKLY ACCELERATED PAYMENTS
If you’re hoping to pay your
How? Well, payments are made on the same day every second week or exactly every 14 days. For
This is a very easy payment plan to keep up with if you receive a pay cheque every two weeks. If you are paid monthly, or semi-monthly (the 1st and 15th of every month), bi-weekly payments can be very difficult because of the extra payments twice a year. This is because your income does not change, but your mortgage payment will be 1 1/2 times the normal size (e.g.$1,500 rather than $1,000). See the comparison below for an example of the savings.
Regular weekly payments don’t make much of a difference in terms of cost savings. The $1,000 monthly payment is multiplied by
A very small amount of savings are gained due to
WEEKLY ACCELERATED PAYMENTS
Similar to bi-weekly accelerated payments, weekly accelerated payments allow you to pay off your mortgage faster by sneaking in a few extra payments. They are
COMPARISON AT A GLANCE:
The table below shows a comparison of interest saved and the length of time this takes.
For this example, we have used a mortgage of $142,772.35 at 7% for an original amortization of 25 years.