Is it better to pay your home loan weekly, every two weeks, or once a month? - prêt hypothécaire

You have probably heard that it is preferable to make your home loan payments as frequently as we can. How can we best understand this strategy?

Let us look at the two alternate ways of making weekly or twice monthly payments (prêt hypothécaire).

-accelerated weekly payments
-minimum weekly payments

The method that most of us use is the accelerated weekly payment method. With this method, the standard monthly payment is divided by 4. When you examine this, you will realize that you are really making more payments than you would otherwise in a year. There are more than 4 weeks in a month, so with this system, you end up paying an extra 4 payments a year on your home loan - prêt hypothecaire.

You can see right away that the savings from these two methods will not be the same. The minimum weekly payment (prêt hypothecaire) increases the frequency of payments from 12 times annually to 52 times annually, while the accelerated weekly payment method actually ADDS 4 extra payments to the number of payments, in addition to increasing the frequency of payments.

We can look at my studies of these two methods of mortgage payments.

The minimum weekly payment

Let us use a hypothetical loan of $200,000 at 5.4%, with a 25 year amortization period. This method of payment would save the borrower $1,294.12 over the life of the loan - prêt hypothécaire.

If the interest rate were higher, his savings would be substantially higher. An interest rate of twice as much would mean a savings 7.08 greater.
The borrower will have a 43% savings with a once a week payment instead of a once every two weeks payment. The rate of interest will not affect this.

How can this be?

There is a easy explanation, but explaining it is not easy. There is less time between each payment, therefore a capital portion of the loan is constantly being paid down a few days earlier. This reduces the interest paid on the outstanding portion. Even though this savings is not very great for each payment, the overall cumulative total is large.

Findings: The more payments that are made, the more you will save on your mortgage, even if you never increase the amount being paid. So, make your payment each week to get the most savings. If not, at least do it every two weeks.

The accelerated weekly payment - Summary:

1. The accelerated weekly payment increases payments by $23.25 a week on a mortgage of $200,000 amortized over 25 years with an interest rate of 5.4%.

2. The home ($200,000) will be paid off in 1,107 payments, or 21.3 years.

3. The savings will be $28,173.78 (the calculations are at the end of the article)

4. It will be wiser not to make accelerated payments if you have a fixed or guaranteed investment which earns 7.52% per year before taxes.

It is important to choose the right payment method for your mortgage, but the most critical thing of all is to choose the best mortgage strategy.

Notes : If someone buys a home for $200,000 (with a rate of 5.4%) and pays it once a month ($1,209.16 a month), he will have paid $362,749.83 after 25 years ($200,000 plus $162,749.83 in interest); on the other hand, with accelerated weekly payments ($302.29 per week), he will have paid $334,576.05 ($200,000 plus $134,576.05 interest) in 1,107 weeks our 21.3 years. This is a savings of $28,173.78 ($362,749.83-$334,576.05) to pay the same mortgage.

Gregory is an Accredited Mortgage Professional (AMP). To get more information on mortgage loans - prêt hypothécaire, please visit: Informezvous.com - hypothèque