Why? Because it is the smart thing to do!

Making accelerated mortgage payments can mean thousands of dollars in savings!

Normally, your lender will require you to make monthly payments. These monthly payments will consist of both principal and interest.

However, you will usually have the opportunity to make accelerated payments.

What are Accelerated Mortgage Payments?

Accelerated payments on your loan basically results in you paying the equivalent of an extra monthly payment each year. Making accelerated bi-weekly or weekly payments takes advantage of the fact that there are more than four weeks in some months.

For accelerated bi-weekly payments, your normal monthly payment is divided by two, and you pay this amount every two weeks.

As an example, if your regular monthly payments are going to be $1000, you would now pay $500 every two weeks. If you paid monthly, in a year you would make 12 payments of $1000 for a total of $12,000. However, if you were on a accelerated bi-weekly schedule, in a year you would make 26 payments (one payment every other week) for a total of $13,000.

For accelerated weekly payments, your normal monthly payment is divided by four, and you pay this amount every week.

As an example, if your regular monthly payments are going to be $1000, you would now pay $250 every week. If you paid monthly, in a year you would make 12 payments of $1000 for a total of $12,000. However, if you were on a accelerated weekly schedule, in a year you would make 52 payments (one payment a week) for a total of $13,000.

Accelerated Mortgage Payments - The Benefits

Accelerated mortgage payments have two significant benefits.

First, you will pay less in interest - you will save money! As the example above demonstrates - you will pay the equivalent of an extra monthly payment every year. The extra payment is taken directly off of the principal. This will save you money in interest. That saving in interest will then be applied directly to your principal. As you can see, this compound effect will save you thousands of dollars!

For example, with regular monthly payments on a $200,000 mortgage at a 5.00% fixed rate, you will have paid nearly $350,000 at the end of 25 years. However, if you use an accelerated bi=weekly payment plan, you will only pay around $325,000 and have it paid off in just over 22 years! You save a staggering $25,000 dollars and have the mortgage paid off 3 years earlier!

And that is the other great benefit of making accelerated payments on your mortgage - you will be mortgage free faster!

Accelerated Mortgage Payments - Important Notes

The difference between accelerated bi-weekly payments and accelerated weekly payments is very small (only a savings of about $500 over 25 years).

The difference between accelerated bi-weekly payments and bi-weekly payments is huge! While accelerated bi-weekly payments result in you paying the equivalent of an extra monthly payment, bi-weekly payments (not accelerated) does not! You can easily calculate whether you are making accelerated bi-weekly payments by simply dividing your monthly payment by two.

As an aside, bi-weekly payments are calculated by multiplying your monthly amount by 12 and then dividing it by 26. Using the same example as above ($1000 monthly payment), your bi-weekly payment would be $461.54. Making bi-weekly payments will only save you a very minimal amount - so when you tell your lender you want to make accelerated bi-weekly payments - make sure that is what they give you!

Accelerated Mortgage Payments - A Smart Idea!

Accelerated mortgage payments were designed to save you money and shorten the life of your loan.

It does a great job on both of these fronts - and unless you really love having a mortgage, you'll want to make accelerated mortgage payments!