What are the benefits of repaying a mortgage with accelerated payments? – RateTrade.ca

What are the benefits of repaying a mortgage with accelerated payments? – RateTrade.ca

Paying off your mortgage fast, is it a good choice? In most cases, yes and here’s how to go about it.

Mortgage Accelerated Payments: Since interest rates are low these days, repayment of the mortgage is not necessarily the priority. You have to think first about paying off any credit card debts with prohibitive interest rates (19.9%) and providing a security cushion to deal with any unforeseen circumstances.

On a new mortgage, the financial institution gives the option to choose the frequency of mortgage payments. Here is a description of the six possible frequencies.

We will also put a special emphasis on accelerated payments and their contribution to the reduction of interest paid during the mortgage loan.

Frequencies called “accelerated.”

After the four traditional payment rates, there will also be an option to make payments every two weeks or weekly, but on an accelerated basis.

Accelerated mentioning has its reason to be popular because the acceleration of payments will make it possible to finish the mortgage payments faster, and therefore to save interest.

First, it is important to describe how the recurring amount is calculated for the four traditional frequencies. The system determines the amount that will be required for each mortgage payment so that the loan ends in 25 years.

It means that regardless of the choice of payment frequency: monthly, fortnightly, biweekly or weekly, you will still have to pay to till 25 years. It is here that the “accelerated” rates come into play.

Decrease the duration of the loan

Finally, at the time of renewal of the loan, it is advisable to reduce the remaining term of the mortgage loan. “The payments increase slightly while the interest savings are enormous.

In the case of a loan of $ 175,000 over 25 years with a rate of 4%, it would be sufficient, after five years, to reduce the duration of three years (of the remaining 20 years to 17), Monthly payments of $ 106.5 to save $ 17,000 in interest! For example, for a mortgage of $ 200,000, over 25 years, with a rate of 2.99%:

Normal monthly reimbursement:

Amount of payments: $ 945.47

Number of installments: 300

Interest paid over the entire term: $ 83,639.52

Accelerated refund every two weeks:

Payment: $ 472.74

Number of installments: 578

Interest paid over the life of the plan: $ 73,064.02

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