Does paying your mortgage weekly or every two weeks really have an impact over paying it once a mont

You have frequently heard it said that you are better off making mortgage payments once a week or every two weeks.

How does this strategy ? - prêt hypothécaire

To answer this question, you have to examine the two alternate ways of making these payments:

1. accelerated weekly payment

2. minimum weekly payment

The most common method is the accelerated weekly payment. It is really the monthly payment divided by 4. But in reality, there is not 4 weeks in a month, but a little more. This method is called the accelerated payment method because is has 4 additional weekly payments over the course of the year and this fact by itself increases the payment made against the capital of the home (prêt hypothecaire) loan during the year.

The other method is the minimum weekly payment. It is the minimum payment that you can make on your mortgage until the end of the amortization period, and the home loan is paid off.

Obviously, the savings from the two different methods will not be the same. The minimum weekly payment method only increases the number of payments from 12 to 52. The same amount of money is paid. The accelerated weekly payment method (hypotheque) allows you to pay four more payments in a year, in addition to increasing the frequency.

I have done studies of these two paydown methods, so let us examine them.

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 - prêt hypothecaire.

If the interest rate were higher, his savings would be substantially higher. An interest rate of twice as much would yield a savings 7.08 greater.

The borrower will have a 43% savings with a once a week payment instead of 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 describe. Since there is less time between each payment, xome part of the capital of the loan (hypothèque) is being paid off a few days earlier each time. This will reduce the total interest on the loan, since there is a lower balance for the interest to be charged 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 weekly, or at least every two weeks - prêt hypothécaire.

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.

Yes, it is important to choose the best payment method for your home loan, 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.

Gregory is an Accredited Mortgage Professional (AMP). To get more information on Mortgage Loans - pret hypothecaire, visit: Hypotheque - Mortgage IntelligenceThis article is free for republishing
Source: http://www.articlealley.com/article_142767_19.html