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1. Accelerated bi-weekly payment option
A good way to shorten your Amortization may be to choose the accelerated bi-weekly payment option. This allows you to pay half of your monthly payment amount every two weeks. By doing this, you end up making the equivalent of one extra monthly payment a year. To see how this works, see the example below.
Example: Accelerated bi–weekly payment option
John pays $1,000 per month for his mortgage. Since he makes this payment 12 times a year, his payments total $12,000 at the end of the year.
Let's assume that John decides to make his payments every two weeks. His payments will be $500 every two weeks (i.e., $1,000 ÷ 2) and he will make 26 payments (i.e., 52 weeks ÷ 2) for a total of $13,000 at the end of the year.
The following example illustrates how much you can save in interest charges if you choose the accelerated bi-weekly payment option, assuming your mortgage is $150,000 at 6.45 per cent amortized over 25 years.
Example – Accelerated bi-weekly payment option
| |
Monthly |
Accelerated bi-weekly |
| Payment |
$1,000.00 |
$500.00 |
| Amortization |
25 years |
22.58 years |
| Interest paid |
$150,059.80 |
$ 120,648.46 |
| Interest saved |
- |
$ 29,411.34 |
Similar interest savings can also be obtained with the accelerated weekly payment option. If John decides to make his payments every week, his payment will be $250 every week (i.e., $1,000 ÷ 4). He will make 52 payments (i.e., 52 weeks) for a total of $13,000 at the end of the year.
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