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Mortgage Payment Options

April 1, 2013

 

Mortgages used to be paid the same as rent, once a month. However, for awhile now, financial institutions have been allowing more flexibility in payment plans. This includes weekly, bi-weekly and semi-monthly, all outside the traditional once a month payment.  Depending on paycheck schedule, these options allow payments to coincide with paycheck.

However, unless you are on an accelerated plan, the interest paid on all schedules are almost the same. Within the Canadian housing market, the average mortgage is approximately $300,000. Canadian mortgages are now a maximum of 25 years. Within this framework, below is a comparison of  the interest paid on different payment schedules.

The mortgage amount is $300,000 at 5.24% on an amortization schedule of 25 years. The term is 5 years.

12 Monthly payments of $1786 gives $73,675 in interest.

26 Bi-monthly payments of $823 gives $73,675 in interest.

52 Weekly payments of $411 gives $73,497 in interest.

Accelerated payments mean you put more on each payment reducing amortization to 21.5 years.

26 Accelerated Bi-weekly payments of $893 gives $72,282 in interest.

52 Accelerated Weekly payments of $447 gives $72, 216 in interest.

The bottom  line with a normal mortgage is that if you want it to come down faster, you must put more money on it, whether it be weekly, bi-weekly, monthly or yearly.

To get your mortgage paid the fastest with the least money, you must pay interest only on what you owe, decrease your mortgage payments along with your decreasing balance and apply the savings as interest free payments against your outstanding balance.

Since all banks want the maximum amount of profit, the loans officer will not want to do this. It must be a negotiated payment schedule. If you want to reduce what you pay, you must improve your negotiation skills or hire someone with great negotiation skills.

For those reading this who do not like to pay any more interest than absolutely necessary, whether you just renewed or if your term is almost ready for renewal, contact me at 250.766.2106 or fredmurray@shaw.ca. We may be able to save you years of payments. We have the negotiation skills and the experience to help you pay less.

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2 Comments
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