If you are currently shopping for a mortgage, you may have heard about how your payment frequency can affect your amortization and save you money in the long-run. For example:
The main difference between regular bi-weekly payments and accelerated bi-weekly payments is the number of payments you make per year. When you pay bi-weekly, you make a payment twice per month - giving you a total of 24 payments made in one year. With the accelerated bi-weekly option, you make a payment every two weeks, which turns out to be 26 payments in one year.
How Much Can I Save?
At first glance, making 26 payments per year as opposed to 24 might sound like it would not make much of a difference. Consider the following scenario:
If you had a $350,000 mortgage and made a 10 percent down payment, chose a 25 year amortization and secured an interest rate of 3 percent, you would end up paying $135,390 in interest if you made regular bi-weekly payments. By switching your payments to accelerated bi-weekly for the same mortgage, you would be paying $118,755 in interest and have your mortgage paid off in 22 years.
By increasing the payments from regular bi-weekly to accelerated bi-weekly for this particular mortgage scenario, there is a whopping $16,635 of savings and the ability to be mortgage free almost 3 whole years sooner.
For more details on payment frequency and what your best options are, contact us today.
