Accelerated by-weekly mortgage payments

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Accelerated bi-weekly payments


Bruce Schoenne, RI, AACI, P.App.
Aug 11, 2009 - 7:46:00 PM
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How do accelerated bi-weekly mortgage payments work and how can they help pay my mortgage off quicker?

If you're looking for ways to pay off your mortgage quicker, you have three basic options; reduce your amortization period, increase your monthly mortgage payment or change the way you make your payments.

If changing the way you make your payments sounds appealing, than accelerated bi-weekly mortgage payments might be just the ticket.

Not to be confused with semi-monthly mortgage payments (24 payments per year), accelerated bi-weekly mortgage payments (26 payments per year) will not only pay your mortgage off quicker, but it's guaranteed to save you a significant amount of money over the term of your mortgage.

Here's how it works.

Let's say you have a mortgage of $100,000, an interest rate of 5.00% and an amortization period of 25 years.  Your monthly mortgage payment would be $581.60 and your total payments for a year would be ($581.60 x 12) $6,979.20.

To understand the savings accelerated bi-weekly mortgage payments can make, take the monthly mortgage payment of $581.60 and divide it by two ($581.60 / 2 = $290.80).  Then take that payment and multiple it by 26 to arrive at your total of all payments for the year ($290.80 x 26 = $7,560.80).

There's the difference.  Using the monthly mortgage payment plan, you've made a total of $6,979.20 worth of payments for the year, while using the accelerated bi-weekly mortgage plan you've made $7,560.80 worth of payments, a difference of $581.60.  Basically with accelerated bi-weekly mortgage payments, you're making one additional monthly payment in the year.

Using this example, you would reduce the amortization on your $100,000 mortgage from 25 years to just over 21 years and a total savings on interest, over the life of the mortgage, to just over $12,000.

If you can possibly find a way to make accelerated bi-weekly mortgage payments, do it! You'll thank yourself later.

Looking for more information on accelerated bi-weekly mortgage payments? Contact Us

 


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