| Does paying your mortgage weekly or every two weeks really have an impact over paying it once a... |
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You have probably heard that it is better to make your home loan payments as frequently as we can. How can we best understand this concept? Let us look at the two alternate ways of making weekly or twice monthly payments (hypotheque). -accelerated weekly payments -minimum weekly payments The method used most frequently 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 each 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 paying against your loan (hypotheque) balance. The next method is the minimum weekly payment in which you make the minimum payment that you can on the home loan until it is paid off during its amortization period. It is clear that the savings from these different two mortgage payment (hypotheque) methods is not alike. The minimum weekly payment just increases the frequency of the payments from 12 times a year to 52 times a year, and the accelerated weekly payment increases not only the frequency of payments, but also adds 4 extra payments. Lets look at the result 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 - pret hypothecaire. An interest rate of double that amount would give a savings that is 7.08 times greater. The borrower will have a 43% savings if he pays his loan every 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 (pret 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 lelvied 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 - pret 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 (you can see the calculatons at the end of the article) 4. It will be wiser not to make accelerated payments if you have a fixed or guaranteed investment which earns 7.52% per year before taxes. Choosing the best method of payment for your mortgage is important, but less 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. About AuthorGregory is an Accredited Mortgage Professional (AMP). To get more information on Mortgage Loans - pret hypothecaire, visit: Hypotheque - Mortgage IntelligenceSource: ArticleTrader.com Read more at: http://www.articletrader.com/finance/mortgage/does-paying-your-mortgage-weekly-or-every-two-weeks-really-have-an-impact-over-paying-it-once-a-month-pret-hypotheca.html. |
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