To answer this question, you have to look at the two alternate 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 in reality, you are making more than 4 monthly payments, since there is a bit more than 4 weeks in a month. This is the accelerated payment method because there are an extra 4 payments in a year, so this increases the number of payments you are making against your mortgage (hypotheque) 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.

You can see right away that the savings from these two methods will be different. The minimum weekly payment (pr't hypoth?caire) increases the frequency of payments from 12 times annually to 52 times a year, while the accelerated weekly payment method actually ADDS 4 extra weeks to the number of payments, in addition to increasing the frequency of payments.

We can look at my studies of these two methods of mortgage payments.

The minimum weekly payment

Let us use a hypothetical loan of $200,000 at 5.4%, with a 25 year amortization period. This method of payment would save the borrower $1,294.12 over the life of the loan - pr't hypothecaire.

If the interest rate were higher, he would save a lot more. An interest rate of twice as much would mean a savings 7.08 greater.

The borrower will have a 43% savings with a once a week payment rather than a once every two weeks payment. The rate of interest will not affect this.

How can this be?

The explanation is simple, but nevertheless difficult to explain. Since there is less time between each payment, a part of the capital of the loan (hypotheque) 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 seem 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 greater will your savings be on your mortgage, without making any increase in payments. So, if it is at all possible, make your payments weekly, or at least every two weeks - hypotheque.

The accelerated weekly payment

If you decide to pay your payments with the accelerated weekly payment method, it will increase the payment by $23.25 per week on the $200,000 mortgage (at 5.4%, amortized over 25 years).

With this case, the mortgage is paid off in 1,107 payments, or 21.3 years and the total savings will be $28,173.78i (see the calculations at the end of the article.)

The only exception to this rule would be if you have a fixed or guaranteed investment which is paying 7.52% interest annually, before taxes.

Yes, it is important to choose the best payment method for your mortgage, but the really important thing is to choose the best mortgage strategy for your circumstances.

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.