I wanted to know the best way to pay a mortgage to save as much money as possible. Here are the conclusions that you want to take away from my studies.
Was it better to pay you mortgage weekly, bi-weekly or monthly?
-> Paying you mortgage weekly would save you 1294.12$ on a 200 000$ mortgage amortized over 25 years (rate of 5.4%). Now that's not a ton of money but it does not cost you anything. You do not have to increase your payments at all to save. So take the saving and run with it.
-> The higher the interest rate the more you will save. If we double the interest rate, the savings are 7.08 times larger. That means that there is an exponential factor that increases, power of this strategy.
-> Paying your mortgage weekly generates 43% more savings than paying your mortgage bi-weekly.
How to increase your savings by weekly accelerated payments?
Recently many people have started to use a strategy called weekly accelerated mortgage payments. That means that they not only save money by paying weekly but they also make their payments a little bigger and save a lot of money.
To do this they simply take their monthly mortgage payment and divide it by 4. Since there is a little more than 4 weeks in a month (actually there are 4.33) they end up making 4 weekly payments more every year.
-> On a 200 000$ mortgage (rate 5.4% amortized over 25 years) the extra payment would only be 23.25$ per week.
-> You would pay out the mortgage 3.7 years earlier
-> The total savings would be 23 173.78$. Not bad! (for details visit the resource box)
Paying your mortgage weekly and accelerated is worth it! The savings on the capital you use to increase your payments is equal to having a return on investment of 7.52%. Not bad for a guaranteed return!
Saving money does not have to be complicated: pay your mortgage weekly. If you can accelerate your payments a little, you'll save more. If paying your mortgage weekly is not possible then pay it bi-weekly. It's not as good as paying weekly but it's better than paying monthly!
