Should I Accelerate My Mortgage Payments?
Most potential homeowners look for ways to get the lowest mortgage rates possible. However, the length of the repayment period, called amortization, is often forgotten or overlooked. This affects how long it will take to repay your mortgage, as well as how much interest the bank will collect from you over that period of time.
Luckily, mortgage rates are flexible. Along with amortization, you may also choose how frequently you issue payments based on your own personal preferences. You may also choose to “accelerate” your mortgage payments, meaning you will pay higher payments in order to shorten your amortization period.
Keep reading to learn about the specifics of each mortgage payment frequency option, as well as the pros and cons of selecting an accelerated payment option.
READ MORE: Questions to Ask Your Mortgage Broker
Mortgage Payment Options
With a monthly mortgage payment, you will make one payment every month. This will likely fall on the same day each month. You will make 12 payments per year with this option.
With a semi-monthly mortgage payment, you will make two payments every month. These will likely fall on the same two days each month – for example, the 1st and the 15th. You will make 24 payments per year with this option.
With a weekly mortgage payment, you will make one payment every week. These will likely fall on the same day of the week. You will make 52 payments per year with this option.
With a bi-weekly mortgage payment, you will make one payment every two weeks.
Contrary to popular belief, this is not the same thing as a semi-monthly mortgage payment. A bi-weekly payment is explicitly made every 14 days, but it does not take the actual month into account. A semi-monthly payment, meanwhile, is explicitly made twice a month, regardless of whether it has 28 days or 31. You will make 26 payments per year with this option.
Here’s how to calculate your average biweekly payment:
Monthly payment x 12 months = X. X divided by 26 payments = your bi-weekly payment.
So, let’s say your monthly payment is set at $1,500. In this case, your biweekly payments would be around $692.
Accelerated Bi-Weekly Payments
If you wish, you can “accelerate” monthly payments. For accelerated bi-weekly payments, you divide your monthly payment into two, and pay that amount every two weeks. Some months have more than two payment dates. As a result, payments will be higher, but you will pay off your mortgage sooner than the intended amortization period. You will make 26 payments per year with this option.
Accelerated Weekly Payments
For accelerated weekly payments, you divide your monthly payment into four, and pay that amount every week. Some months have more than four payment dates. As with the “accelerated bi-weekly” option, payments will be higher, but you will pay off your mortgage sooner than the intended amortization period. You will make 52 payments per year with this option.
Benefits of Accelerated Payments
Accelerated payments can be viewed as an investment that pays off in the long-term. Your payments will be higher, but you will finish paying off your mortgage years earlier than expected. As a result of the shorter payment term, you’ll save money on interest fees.
READ MORE: Fixed vs. Variable Mortgage Rates
How to Determine Which Option is Best For You
Ultimately, there is no “right” or “wrong” payment option. You can choose what fits your personal preferences best.
Paying monthly is the “default” payment frequency, and, therefore, is the most common. This option might be appealing because many other bills are distributed monthly.
Meanwhile, many homeowners prefer making bi-weekly payments. If you receive your income bi-weekly, you may choose to coordinate your mortgage payments to be due when you are paid.
READ MORE: What Type of Mortgage is Best For Me?
Additional Tips For Paying Down Your Mortgage Faster
You can limit the amount of interest owed by paying off your mortgage faster. Choosing an accelerated frequency for your payments is the most popular way to do this. Otherwise, you could do the following:
- Accept a lower amortization: most people decide their amortization period based on how much they are able to pay off per month. However, you may choose to prioritize pursuing a shorter payment period instead.
- Make a lump sum payment: at any point, you may choose to contribute more towards your mortgage loan. Be careful, though – many mortgages have a maximum amount you are allowed to pay off, and you may be penalized for exceeding it.
READ MORE: How To Pay Your Mortgage Off Faster
In conclusion, when it comes to determining the best payment frequency for your needs, consider the following:
- You can change the frequency of your mortgage payments to fit your lifestyle.
- You can accelerate your mortgage payments, which will raise their individual price, but your amortization period will end sooner.
- You can also pay your mortgage off faster by accepting a lower amortization, or making lump sum payments in accordance with your bank’s rules.
If you want to change your payment frequency, or learn more about your options, speak to a mortgage broker.