Why should I pay my mortgage accelerated bi-weekly?

I can pretty much guarantee you each week I have a client ask me a question such as  ‘Why should I pay my mortgage bi-weekly vs accelrated bi-weekly” or ‘Why should I pay my mortgage monthly vs bi-weekly’ and so in response, I have decided to write a post about the difference frequencies and how they will affect your payments and mortgage amount at term.
For this example, we are going to assume a mortgage amount of  $100,000, with a 3% interest rate, 5 year term, 25 year amortization

Monthly payment $473.25
self explanatory, this is the base monthly payment
Over the term you will pay the following:
$28,395.00 Total payments
$13,869.30 Total interest
$14,525.70 Total Principal
$85,474.30 Balance remaining at maturity

Semi-monthly payment $236.48

monthly payment divide by two
$473.25/2=$236.48
Over the term you will pay the following:
$28,377.60 Total payments
$13,851.68 Total interest
$14,525.92 Total Principal
$85,474.08 Balance remaining at maturity

Bi-weekly payment $218.28
monthly payment multiplied by twelve and divided by twenty six
$473.25×12/26=$218.28
Over the term you will pay the following:
$28,376.40 Total payments
$13,850.29 Total interest
$14,526.11 Total Principal
$85,473.89 Balance remaining at maturity

Accelerated bi-wekly payment $236.62

monthly payment multiplied by thirteen and divided by twenty six
$473.25×13/26=$236.62
Over the term you will pay the following:
$30,760.60 Total payments
$13,655.11 Total interest
$17,095.49 Total Principal
$82,904.51 Balance remaining at maturity

Weekly payment $109.11
monthly payment multiplied by twelve and divided by fifty two
$473.25×12/52=$109.11
Over the term you will pay the following:
$28,368.600 Total payments
$13,842.07 Total interest
$14,526.53 Total Principal
$85,473.47 Balance remaining at maturity

Accelerated weekly payment $118.31
monthly payment multiplied by thirteen and divided by fifty two
$473.25×13/52=$118.31
Over the term you will pay the following:
$30,760.60 Total payments
$13,655.73 Total interest
$17,104.87 Total Principal
$82,895.13 Balance remaining at maturity

Let me point out that the majority of questions that I receive are around the accelerated biweekly and regular biweekly payment difference. The calculation is the biggest difference, it’s the difference between 12 months payments or 13 months payments spread over 26 payments.
If at all possible, I would suggest that you take an accelerated biweekly or accelerate weekly payments. By taking an accelerated payment you are paying off your principal faster and therefore less interest is applied savings you thousands of dollars.
You can see that the difference between accelerated bi-weekly and accelerated weekly is minimal, so if at all possible at least make your payment accelerated biweekly.
Important to note that there are times in our life when accelerating payments is just not possible and I completely respect that. The point to this post is for two reasons; 1. To help my clients understand the difference between different payment frequencies and 2. To help my clients understand the difference the additional payments will make over the term and then life of their mortgage.
Note most lenders will allow you to move your payment frequency at least once per year with no penalty or fee.
Should you have any questions about this post or any other mortgage related question, please reach out to me at ana@lamortgageteam.com or 905.870.0513.

 

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