Assume you are provided a Monthly payment amount. It’s easy to convert into another frequency. Simply, take the payment and multiply by 12 and divide by the new frequency (i.e. 52 if weekly).
Let’s assume the same $500,000 balance, 25 year amortization, and 3% interest rate.
There is no input for making it “accelerated” or “non-accelerated”. That is because the calculation relies on the monthly payment to make a simple adjustment:
Accelerated Bi-Weekly = monthly payment /2
Accelerated Weekly = monthly payment /4
If you think about it, it is calculating the payment on a shorter year. Normally, to convert to weekly we would take the Monthly Payment x 12 /52 weeks. However, under the accelerated formula we are taking the Monthly Payment and dividing by 4 which is the equivalent of a 48 week year. Simply put, accelerated is paying a higher payment amount based on a 48 week year but making this payment over a 52 week year.
It’s just a higher payment amount which has the wonderful benefit of paying off your mortgage faster.
Some payment strategies:
1. Match your employment pay schedule.
You’ll likely agree that paying the mortgage is probably most non-negotiable debt you can have. The fees can be horrendous for missing payments and falling behind too much can cause a power of sale situation. Yikes!!
So, if you get paid every two weeks then set your mortgage payment bi-weekly to come out right away and you won’t have to think about it. Whatever is left is yours to save, spend, or donate.
2. Set the payment amount as low as possible at the beginning of the term
Let’s say we calculate your monthly mortgage payment with a 25-year amortization at $1000 per month. You tell me that $1200 is better because you can afford a higher payment and want to pay it off faster. Great idea! However, let’s say that “life happens” and you lose your job. If you go to the lender and ask for a lower payment, they will likely say, “sorry, the lowest we can do is what you set it up for.” Ack! And they may say, “…you’ll need to refinance again for a lower payment.” Double ack!! Especially when trying to apply for a mortgage approval with no employment.
Instead, you should set the payment at $1000 initially and increase it at day one to $1200. Depending on the Lender, you should be able to increase your mortgage payment 15-20% each year at the anniversary date. It’s also a great way to buffer the payment shock against a higher rate on renewal.
3. Ask your lender to collect and remit your property taxes.
Depending on your municipality, you might get hit with a large property tax bill that you don’t have the cash for today. Rather than struggling to figure out where it’s going to come from, have the Lender collect a portion for you. They will also remit it to the municipality for you which can save you administration efforts and or late fees if your mail is piling up.