How To Pay Off Your Mortgage FASTER

Anyone who tells you to choose bi-weekly mortgage payments, ain’t helping your cause.

The KEY word is ACCELERATED bi-weekly.

Most financial institutions offer a number of payment options (monthly, semi-monthly, bi-weekly, accelerated bi-weekly, weekly, and accelerated weekly payments). Although these options may all seem the same, some payment methods such as accelerated weekly and bi-weekly payments can save you a lot in interest charges, compared with regular monthly payments.

The following table illustrates the savings in interest you can get with various payment options. It assumes that you have a mortgage of $150,000, amortized over 25 years, with a constant interest rate of 6.45 per cent. As you will note, choosing the accelerated weekly or bi-weekly payment option can save you thousands of dollars in interest charges over the duration of your mortgage.

Example – Interest savings resulting from various payment options*

	Payment	Frequency	Amortization	Interest paid	Interest saved
Monthly	$1,000	Every Month	25 years	$150,060	–
Semi-Monthly	$500	24 times a year	25 years	$149,660	$400
Bi-Weekly	$460	26 times a year	25 years	$149,630	$430
Weekly	$230	52 times a year	25 years	$149,455	$605
Accelerated bi-weekly	$500	26 times a year	20.7 years	$120,650	$29,410
Accelerated weekly	$250	52 times a year	20.6 years	$120,300	$29,760

* Note: For illustration purposes, numbers in this example have been rounded off. Each institution may calculate interest differently. The interest paid and saved was calculated over the period of amortization of the mortgage.

With monthly payments, funds are taken from your account on a specific day once a month (or 12 times a year); for example, on the first day of each month. This type of payment does not result in any interest savings when compared to the other payment options that follow.

If you choose the semi-monthly payment option, half of your monthly payment amount will be taken from your account twice a month (e.g., on the 1st and 15th of each month), and you will make 24 semi-monthly payments a year. This type of payment does not result in any significant interest savings.

With the non-accelerated bi-weekly payment, you make a payment every second week (e.g., every second Thursday). Since there are 52 weeks in a year, you will make 26 payments a year (52 weeks ÷ 2). To calculate the amount of your bi-weekly payments, multiply your monthly payment by 12 and divide it by 26 ($1,000 × 12 ÷ 26 = $461.54). This type of payment does not result in any significant savings in interest.

With the non-accelerated weekly payment, you make a payment every week (e.g., every Thursday). Since there are 52 weeks in a year, you will make 52 payments in a year. To calculate the amount of your weekly payments, multiply your monthly payment by 12 and divide it by 52 ($1,000 × 12 ÷ 52 = $230.77). This type of payment does not result in any significant interest savings.

The accelerated bi-weekly payment allows you to pay half of your monthly payment every two weeks (e.g., every second Thursday). Since there are 52 weeks in a year, you will make 26 payments a year (52 weeks ÷ 2). By doing this, you make the equivalent of one extra monthly payment a year, which means you pay off your mortgage faster and save interest charges.

If you choose the accelerated weekly payment, one-quarter of your monthly payment amount will be debited from your account every week (e.g., every Thursday). Since there are 52 weeks in a year, you will make 52 payments a year. As with the accelerated bi-weekly option, you make the equivalent of one extra monthly payment a year, which means you pay off your mortgage faster and save on interest charges.