Accelerated mortgage payments are a great way to pay off your mortgage faster and save thousands of dollars over the life of the loan. However, before you decide to opt for this method of paying your mortgage, you must understand all the terms and conditions carefully. Purchasing a home is one of the largest investments a person can make. Similarly, mortgage loans are some of the largest debts a person can have. If you are able to pay off your mortgage earlier, you can use the extra money to purchase a big item that you might not otherwise afford.
Accelerated mortgage payments are one of the six types of payment options available to mortgage holders. These payments can be made on a weekly or biweekly basis. While most banks allow accelerated options, others do not. While a few banks will allow borrowers to make a payment every two weeks, many banks and mortgage brokers only allow them on weekly or biweekly payment frequencies.
In addition to reducing the total amount of interest you will pay, making your mortgage payments more often is also advantageous. An accelerated mortgage payment schedule can reduce the length of your mortgage by several years. The savings will depend on the length of your amortization and the type of loan you have. By choosing the best payment frequency for your mortgage, you can save thousands of dollars on interest.
Before you decide to opt for accelerated mortgage payments, it is vital to read your mortgage contract carefully. Some lenders allow for accelerated payments without prepayment penalties, while others will charge a fee for early payment. If you don’t understand the prepayment penalties involved, you should contact your lender for clarification.
The main benefit of accelerated mortgage payments is that they will save you money in the long run. By making extra payments towards the principal of your mortgage, you will pay off your loan quicker and save thousands of dollars in interest. For example, if you borrow $300,000 and make your mortgage payments every two weeks, you would pay off your home in 41 months, which would save you almost $20,000 over the life of the loan.
You can also opt for biweekly mortgage payments. By paying half the monthly payment every two weeks, you’ll be able to pay off your mortgage in a shorter period of time and pay less in interest. This will save you thousands of dollars over the course of your mortgage. Using a biweekly mortgage payment calculator, you can determine how much you can save.
While you’re paying off your mortgage, it’s still worth it to pay off other high-interest debt before accelerating your mortgage payments. If you have a high-interest credit card or car loan, you should take care of those before you go to the next step. You can also deduct interest from your home loan if you want to reduce your tax liability.