Accelerated payments are payments that increase slightly to allow you to pay down your mortgage faster. There are two common types of accelerated payments: bi-weekly and weekly. Of the two options, bi-weekly accelerated is the most common choice because it allows you to line-up your mortgage payments with paycheque deposits.
An accelerated payment works by increasing your payment which essentially puts an extra two payments per year directly to the principal, without causing stress to your budget as you are in a payment routine.
Types of mortgage payments:
Weekly, Bi-Weekly, Semi-Monthly, Monthly, Accelerated Bi-weekly and Accelerated Weekly
Let’s do the math:
If your mortgage payment is $1,000 per month, you will make 12 monthly payments per year; equalling $12,000.00.
If you choose semi-monthly payments, for example, the 15th and 30th, you will pay $500 per payment, twice a month, totalling $12,000.00 per year with 24 payments. (this is the same as monthly, there is no extra going to principal)
Regular bi-weekly payments are 26 payments per year with $461.50 per payment. The math: $12,000.00/26 weeks in a year = $461.50 (this is the same as monthly, there is no extra going to principal)
The preferred mortgage payment choice by financial planners, mortgage brokers and over barring parents. : ) is the ACCELERATED bi-weekly payment.
Accelerated bi-weekly payments use the semi-monthly payment of $500 X 26 payments. This means your yearly payments will total $13,000.00, giving you a $1000 that will go directly towards your principal saving you interest and will carve an additional two years off the amortization.
In short, with the high cost of housing and the need for larger mortgages, accelerating your payment will assist with saving interest and paying down the mortgage more efficiently than a regular bi-weekly, semi-monthly or monthly payments alone. We like to think we will make lump-sum payments, but in truth, this almost never happens. If you would like to discuss your payment options and how they affect the interest you will pay, call me! I’m here to help and support you.
The Solvent Family
RECAP – Over the past few months the Solvent Family Mom, Dad and two kids have been trying to get on their financial feet. Trying to recapture control of the family finances. Over the past few months, the family has reviewed their previous six months of financials by collecting and scrutinizing every bill, statement and account they have. The task was not a fun one, but they did it. They found where they could save, cut back or eliminate spending.
The family took a whiteboard and wrote about their financial repayment plans, goals and rewards. The whiteboard was placed in the kitchen to ensure their economic and reward goals were visible, getting everyone in the family involved.
They put strategies in place, like family meal planning and taking their lunches to school and work; this is a huge money saver, not to mention a healthier choice. By prepping food on the weekends, it ensured there would be snacks for those on the go moments, sports activities and late day hiccups. They started carrying their “own” water bottles and coffee mugs instead of stopping at the store or coffee drive-thru.
They are targeting one bill a month (or quarter) to pay down and eventually pay to zero. They lived on cash. They put their credit cards in a baggie filled with water and put them in the freezer. This strategy allowed them to keep their credit cards but still have them should they need them in the future. It takes awhile for the credit card to defrost, allowing them to change their mind and weigh the option if they “actually” needed the item.
All in all, they are aware, continuing to be mindful of their spending, their financial standing, where they can save, where to stop the leaking of funds and knowing what they need versus what they want.
The upsides, they were able to save money to go on a family camping trip together, that they paid cash for, which brings a sense of pride and accomplishment. The Solvent Family will continue to be mindful and enjoy a summer holiday they earned. How will you spend your summer? Is it DIY projects that will bring value, sweat equity and pride to your home. Will you have a staycation, fly away, spend time with family? Whatever you do, be mindful. Is the money you are spending money you have on hand and is it worth the memory you are making? Are there free activities you can attend with your family and friends? What will your summer look like? How much extra money will you spend this summer? Where will you find the additional funds?
If you need financial help or help with budgeting, give me a call, I’m here to help. This is a no judgement zone.