The age-old question about mortgage payments... is it really better to increase payment frequency? Answer: If you can afford the payments while keeping up with your financial plan and lifestyle expenses, YOU BET IT IS! Here are the numbers to back that up: Scenario: You have a $300,000 mortgage at 2.5% interest, amortized over 25 years, in 5 year terms. Monthly, youre paying $1,343.90. This works out to $16,126.78 annually. You make 300 payments each term. At the end of 25 years, youll have repaid your $300,000 + $103,169.61 in interest. Twice monthly (i.e., semi-monthly), youre paying $671.60. You make 600 payments each term. At the end of 25 years, youll have repaid your $300,000 + $102,960.92 in interest. Youve saved yourself $208.69 over the course of your mortgage. Meh, the cost savings is nothing to write home about. If you instead opt to accelerated bi-weekly payments, youre paying $671.60 every 2 weeks (this is different from twice a month, its more frequent). This works out to $17,509.61 annually. Youre making 652 payments each term, compared to only 600 payments on a semi-monthly schedule. At the end of 25 years, youll have repaid your $300,000 + $91,084.26 in interest. This will have saved you $12,085.53 compared to paying monthly. This is a more significant cost savings. This is assuming your interest rate stays deliciously low, below 3%, for 25 years. Its unlikely to do so. The higher your interest rate becomes, the greater the cost savings will be by paying on an accelerated schedule compared to monthly. Happy mortgaging, folks!
Posted on: Wed, 17 Sep 2014 00:01:09 +0000
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