You have probably heard that it is better to make your mortgage payments as frequently as possible. How can we best understand this concept?

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

-accelerated weekly payments
-minimum weekly payments

The method that most of us use is the accelerated weekly payment method. With this way, 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 over the course of a year. There are more than 4 weeks in a month, so with this method, you end up paying an extra 4 payments per year on your home loan - prêt hypothécaire.

Obviously, the savings from the two different methods will not be the same. The minimum weekly payment method only augments the number of payments from 12 to 52. The same amount of money is still paid. The accelerated weekly payment method (prêt hypothecaire) has you paying four more payments in a year, in addition to increasing the frequency.

I have done studies of these two paydown methods, so let us examine them.

The minimum weekly payment

Summary:

1. The minimum weekly payment method saves $1,294.12 on a $200,000 loan amortized over 25 years with an interest rate of 5.4%, in comparison with monthly payments - hypothèque.

2. The higher the interest rate, the better the weekly payment will fare. If the rate is doubled, the savings will be 7.08 times more.

3. One receives 43% more savings with a weekly payment than with a payment every two weeks (14 days) and the rate of interest does not make a difference.

Why?

The explanation is simple, but difficult to describe. Since there is less time between each payment, one part of the capital is paid down a few days earlier, which more rapidly reduces the interest paid on the amount that is repaid. The savings is small for each payment but increases drastically over time.

Conclusion: The more often you make the payments, the more savings, even if you do not increase the amount paid. If it is possible, make your payments each week, if not, pay your mortgage every two weeks - hypothèque.

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 (you can see the calculatons at the end of the article)

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

Yes, it is important to choose the best payment method for your home loan, but the most important thing is to choose the best mortgage strategy for your situation.

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.

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