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 each year, so this increases the number of payments you are making against your loan (pr't hypoth?caire) 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 down during its amortization period.
You can see right away that the savings from these two methods will not be the same. The minimum weekly payment (hypoth?que) will increase 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 amount of payments.
We can examine 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 - hypoth?que.
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 not complicated, 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 lelvied on. This savings may appear small on a week by week basis, but the overall savings is substantial.
What can we conclude from this? The more payments you make on your mortgage, the more you will save on your mortgage, without making any increase in payments. So, if it is at all possible, make your payments once a week, or at least every two weeks - pr't hypothecaire.
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 (the calculations are 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.
What is the result of this strategy?
In order to answer this question, we have to define the two possible bi-weekly payment scenarios:
The method that most of us use is the accelerated weekly payment method. With this way, the standard monthly payment is divided by 4. When you examine this, you will realize that you are really making more payments than you would otherwise over the course of a year. There are more than 4 weeks in a month, so with this method, you end up paying an extra 4 payments per year on your mortgage - prêt hypothécaire.
You can see right away that the savings from these two methods will be different. The minimum weekly payment (prêt hypothécaire) 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 examine my studies of these two methods of mortgage payments.
The minimum weekly payment
Summary:
1. The minimum weekly payment method saves $1,294.12 on a $200,000 loan amortized over 25 years with an interest rate of 5.4%, compared to monthly payments - hypothèque.
2. The higher the interest rate, the better the weekly payment will fare. If the rate is doubled, the savings will be 7.08 times more.
3. One receives 43% more savings with a weekly payment than with a payment every two weeks (14 days) and the rate of interest does not make a difference.
Why?
The explanation is simple, but nevertheless difficult to describe. Since there is less time between each payment, xome part of the capital of the loan (prêt hypothecaire) 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 conclusion can we make from this? The more payments you make on your mortgage, the greater will your savings be 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 hypothecaire.
The accelerated weekly payment
An accelerated weekly payment will increase the payments on a mortgage by $23.25 per week on the $200,000 mortgage, amortized over 25 years at 5.4%. In this case, the home will be paid for in 1,107 payments, or 21.3 years. The total savings will be $28,173.78i (please refer to the calculations at the end of the article.)
However, it is better not to make accelerated payments if you have a fixed or guaranteed investment that pays 7.52% per year before taxes.
Choosing the best method of paying down your home loan is important, but not as important than choosing 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.
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