An accelerated weekly mortgage payment is when your monthly mortgage payment is divided by four and the amount is withdrawn from your bank account every week. With an accelerated weekly mortgage payment, you still make 52 payments per year but the payment amount is slightly more than a regular weekly mortgage payment.
In this example, choosing accelerated bi-weekly payments instead of monthly payments on a $150,000 mortgage would save you more than $22,000 in interest costs, and cut more than 3.5 years off the life of your mortgage. You can change your payment frequency without cost at any time during your mortgage term.
1. Bi-weekly means two mortgage payments per month, whereas accelerated bi-weekly, means a mortgage payment once every two weeks. 2. Both of these options help draw down the principal debt faster than monthly payments.
Accelerated weekly payments
Accelerated payments are calculated by assuming there are only 4 weeks in a month. It is calculated by dividing the monthly payment by 4. Since you pay 52 weekly payments, by the end of the year, you have paid 4 additional weekly payments, i.e. a complete monthly payment.
Accelerated weekly and accelerated biweekly payments can save you thousands, or even tens of thousands in interest charges, because you'll pay off your mortgage much faster using those options. The reason is that with the “accelerated” options, you make the equivalent of one extra monthly payment per year.
An accelerated weekly mortgage payment is when your monthly mortgage payment is divided by four and the amount is withdrawn from your bank account every week. With an accelerated weekly mortgage payment, you still make 52 payments per year but the payment amount is slightly more than a regular weekly mortgage payment.
There is an alternative to monthly payments — making half your monthly payment every two weeks. When you make biweekly payments, you could save more money on interest and pay your mortgage down faster than you would by making payments once a month.
The most common way of paying a mortgage is with monthly payments typically on the 1st of every month. This is easy to remember if you are used to paying rent. Most lending institutions will let you make payments on a different date if that is more convenient for you for example the 15th day of every month.
If you make two payments a month—a bimonthly mortgage—multiply 12 by 2. This equals 24 payments a year. With a biweekly plan, you'll wind up making more payments—and pay off your mortgage faster. With a bimonthly plan, you'll save a little in interest and your payments are more frequent than the standard once a month.
However, by paying biweekly – and essentially making one extra monthly payment a year – you'll actually pay your loan off midway through year 25. Think of all the things you could do being mortgage-free for nearly 5 extra years!
"Your loan balance accrues interest every day and reducing that principal balance every 14 days (26 half payments per year) saves more in interest charges than one full additional payment every 12 months, even though the total amount in payments every year remains the same."
If you pay your mortgage repayments weekly or fortnightly, you are paying down the principal amount faster, and thus reducing the interest that will accumulate. Interest is calculated on the principal balance, so with less principal owing, there's less interest payable.
Biweekly payments accelerate your mortgage payoff by paying 1/2 of your normal monthly payment every two weeks. By the end of each year, you will have paid the equivalent of 13 monthly payments instead of 12. This simple technique can shave years off your mortgage and save you thousands of dollars in interest.
When you pay down your mortgage, you're effectively locking in a return on your investment roughly equal to the loan's interest rate. Paying off your mortgage early means you're effectively using cash you could have invested elsewhere for the remaining life of the mortgage -- as much as 30 years.
How the homeowner makes their mortgage payments can save a lot of money over the life of the loan. Tens of thousands of dollars can be saved by making bi-weekly mortgage payments and enables the homeowner to pay off the mortgage almost eight years early with a savings of 23% of 30% of total interest costs.
Well, mortgage payments are generally due on the first of the month, every month, until the loan reaches maturity, or until you sell the property. So it doesn't actually matter when your mortgage funds – if you close on the 5th of the month or the 15th, the pesky mortgage is still due on the first.
The major advantage of paying weekly or biweekly is that you pay an extra month's worth of your mortgage each year. The extra payment each year means you could pay your mortgage off ahead of schedule. The exact length of time depends on the terms of your mortgage.
Save on interest
Since your interest is calculated on your remaining loan balance, making additional principal payments every month will significantly reduce your interest payments over the life of the loan. By paying more principal each month, you incrementally lower the principal balance and interest charged on it.
The additional amount will reduce the principal on your mortgage, as well as the total amount of interest you will pay, and the number of payments. The extra payments will allow you to pay off your remaining loan balance 3 years earlier.
Interest on mortgages tends to accrue daily, so repaying weekly will save you more interest than repaying fortnightly, but not much. Both generally tend to be better than paying monthly.
Weekly debt payments reduce your debt faster than monthly payments if you make a payment every week of the year, which equates to 52 payments. If you take the monthly payment and divide it by four, it takes 48 weekly payments to cover the payments for a year.