Thursday, 8 October 2015

Switch Up Your Payments

www.gotcredit.comWhen was the last time you were thinking about your mortgage? Don't worry, I always am! Did you know that carefully choosing the right payment schedule for your mortgage could save you hundreds, or even thousands of dollars? Read on to learn more!

My mission today is to guide you through the myriad of options available for making your mortgage payments. This info might also come in handy next time you're considering a car loan, or any other debt with installment-type payments.

Monthly Payments

When most people think of installment payments, they usually think of monthly periodic payments. This is a great option for people who have income periods that coincide with this schedule, and it is usually the default option for most loans.

I would recommend this option if you are paid once monthly or semi-monthly, and like the way this fits into your budget.

Semi-Monthly Payments

This option simply takes the regular monthly payments that have been calculated and divides this amount in half. Two payments per month are then debited, usually one near the beginning of the month, and again at mid-month. The payment dates are sometimes flexible and should be discussed with your mortgage broker.

This would be a great choice for those who have a regular paycheque arriving twice monthly, as opposed to every two weeks. Which brings us to...

Bi-Weekly Payments

Bi-weekly simply means that a payment is made every two weeks, like clockwork. Standard bi-weekly payments are calculated according to this schedule, and will be a lower amount than semi-monthly, as you will be making more payments each year.

For those who are paid every two weeks, this is an excellent solution vs. trying to save and wait for a monthly payment to come out of your account. It automates your payment schedule, and if you accelerate it, can even have your mortgage paid off faster. Read on below for more about acceleration...

Weekly Payments

I think by this point you can pretty much figure out how weekly payments are withdrawn and calculated. Your payment will come out once every week, and will be calculated based on 52 payments per year.

Similar to bi-weekly, this is an option that can work if your pay periods correspond to this schedule, and makes your payments simple and automatic at the same time every week.

Accelerated Payments

http://ryanwsmith.ca/mortgage-calculators
Accelerating your payments is done by changing the calculation performed for your mortgage application. Accelerated payments are derived by calculating the standard monthly payment, and then dividing that amount by your desired payment frequency.

For example:

$200,000 Mortgage, Amortized over 25 years @ 2.69% =
 
Monthly Payment of $914.97
NON-Aceelerated(Standard) Bi-weekly Payment of $422.04
Accelerated Bi-weekly payment of $457.48(1/2 of the monthly payment)

As you can see the bi-weekly vs. accelerated payment difference is not dramatic, but you'd be surprised how much it can save you in the long run. Over just 5 years of payments, choosing the accelerated bi-weekly option would save you $319.34 in interest and leave you owing $4926.54 less at the end of a 5-year term.

Look at that over the 25 year life of your mortgage and it could save you $8586.04 in interest, using those same figures. This means your mortgage costs you less and gets paid off sooner!

Why Do I Care About This?

The bottom line is that I am here to help you make the best decisions possible about your mortgage. Something like choosing the right payment schedule for you is important, and it could save you a lot of money!

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