Buy to Let Building Insurance

You have probably heard that it is better to make your home loan payments as frequently as possible. How can we best understand this concept?

Let us look at the two different ways of making weekly or twice monthly payments (prêt hypothécaire).

-accelerated weekly payments

-minimum weekly payments

The most common method is the accelerated weekly payment. It is really the monthly payment divided by 4. But in reality, there is not 4 weeks in a month, but a little more. This method is called the accelerated payment method because is has 4 extra weekly payments over a whole year and this fact by itself increases the payment made against the capital of the home (prêt hypothécaire) loan during the year.

The other method is the minimum weekly payment. It is the minimum payment that you can make on your mortgage until the end of the amortization period, and the home loan is fully paid.

It is clear that the savings from these different two mortgage payment (hypotheque) methods is not alike. The minimum weekly payment only increases the frequency of the payments from 12 times a year to 52 times a year, and the accelerated weekly payment increases not just the frequency of payments, but also adds 4 additional payments.

Let’s look at the result of my studies on mortgage payments for these two cases.

The minimum weekly payment

Summary:

1. The minimum weekly payment method saves $1,294.12 on a $200,000 loan amortized over 25 years with an interest rate of 5.4%, in comparison with monthly payments Рhypoth̬que.

2. The higher the interest rate, the better the weekly payment will fare. If the rate is doubled, the savings will be 7.08 times more.

3. One receives 43% more savings with a weekly payment than with a payment every two weeks (14 days) and the rate of interest does not make a difference.

Why?

The explanation is simple, but difficult to describe. Since there is less time between each payment, one part of the capital is repaid a few days earlier, which more rapidly reduces the interest paid on the amount that is paid down. The savings is small for each payment but increases dramatically over time.

Conclusion: The more frequent the payments, the greater the savings, even if you do not increase the amount paid. If it is possible, make your payments each week, if not, pay your mortgage every two weeks Рpr̻t hypoth̩caire.

The accelerated weekly payment

An accelerated weekly payment will increase the payments on a mortgage by $23.25 per week on the $200,000 mortgage, amortized over 25 years at 5.4%.

In this case, the home will be paid for in 1,107 payments, or 21.3 years.

The total savings will total $28,173.78i (please refer to the calculations at the end of the article.)

However, you are better off not to make accelerated payments if you have a fixed or guaranteed investment that pays 7.52% per year before taxes.

It is important to choose the best payment method for your mortgage, but the most important thing of all is to choose the best mortgage strategy.

Notes : If someone buys a home for $200,000 (with a rate of 5.4%) and pays it once a month ($1,209.16 a month), he will have paid $362,749.83 after 25 years ($200,000 plus $162,749.83 in interest); on the other hand, with accelerated weekly payments ($302.29 per week), he will have paid $334,576.05 ($200,000 plus $134,576.05 interest) in 1,107 weeks our 21.3 years. This is a savings of $28,173.78 ($362,749.83-$334,576.05) to pay the same mortgage.