Changing your payment frequency won’t change the amount you pay on a monthly basis, but can result in big savings over the life of your mortgage and help you become mortgage-free faster.
Accelerated payments are a great way to achieve interest cost savings and reduce the time it takes to pay down your mortgage. An accelerated bi-weekly payment option is calculated by taking a monthly payment schedule, assuming only four weeks in a month, and dividing your monthly payment by two. You make 26 bi-weekly payments and by the end of a year you will have paid the equivalent of one extra monthly payment.
These additional amounts accelerate your loan payoff because they are put toward your loan's principal. This will save you thousands of dollars in interest and take years off of your mortgage.
- Victoria has a mortgage of $250,000 and regular monthly payments of $1,454.02.
- To pay down her mortgage faster, Victoria decides to switch to accelerated bi-weekly payments.
- Victoria’s new payment comes to $727.01 every two weeks, totalling $1,454.02 every 4 weeks.
- An additional $1,454.02 is paid on her mortgage each year.
Victoria’s interest costs over the life of her mortgage are reduced by $31,302.68.
- Her mortgage life is reduced by over three and a half years.