Blog Comments Off on Mortgage payment options: the basics

Most people paying down a mortgage will opt to make monthly payments, as that has been the norm for decades. However, did you know that there are several other options that will help you pay down your mortgage more quickly? It is worth exploring all the different options that are available to you; after all, a mortgage is most likely an individual’s most significant debt load.  Here are some of the options you can ask your broker about if you wish to pay down your mortgage as quickly as possible without having to live paycheque to paycheque:

1. Monthly Payments

As the name suggests, monthly payments are made once a month on a specific day. This is the most common method of paying down a mortgage, most likely because it is the traditional way of doing it and also because it seems to be the least expensive option. However, that is not always the case. While there is certainly nothing wrong with choosing the monthly payment option, it will not save you any money and you will end up paying every penny of interest possible. Some people aren’t bothered by that and prefer to stick with the tried and true. At least with this option, you know exactly what you are getting into.

2. Semi-monthly

Paying your mortgage semi-monthly means that your mortgage payment will be taken from your account  24 times in a year or, to put it another way,twice a month. With this option, the amount of money you save in interest payments over your amortization period is negligible, unless of course you have a significantly shorter amortization period that usual. It is basically the same thing as dividing a monthly mortgage payment in half, not to be confused with paying two mortgage payments a month.

3. Bi-weekly (non-accelerated and accelerated)

There are two kinds of bi-weekly payments: accelerated and non-accelerated. With accelerated bi-weekly payments, you pay half of your monthly payment every two weeks. This method results in an extra mortgage payment a year and saves you money that would have otherwise been spent on interest. Non-accelerated bi-weekly payments are made every second week as well,  but the difference is that you do not make save any significant amount in interest. Sound confusing? That’s because there is a subtle, but important, difference: By paying on an accelerated bi-weekly schedule, you’ll wind up making thirteen full payments each year, resulting in an extra payment–one more than you would make by sending the lender traditional monthly payments. The difference is that a higher frequency of payment equals less interest accrued, saving you money in the long run.

4. Weekly (non-accelerated and accelerated)

On a non-accelerated weekly payment plan, you make a mortgage payment each week or 52 payments a year; this is the same as breaking a monthly payment in four, so you aren’t actually putting any extra money towards your mortgage. Choosing this type of mortgage payment plan is really a matter of personal preference. Often, people who get paid weekly choose this plan so that they can track their other expenses more accurately. Unfortunately, you will not save money in interest payments with this plan. If you choose the accelerated weekly payment, it is essentially the same as the non-accelerated weekly payment plan, but the increased frequency (or acceleration) of payment saves you money on interest by shortening your amortization period slightly.

Choosing a mortgage is not something that should be taken lightly. Making sure you understand your options and how they will affect your financial well-being is paramount. Luckily, an experienced and knowledgeable mortgage broker can help. Give me a call when you have questions about which mortgage is right for you.

Archives