PROUDLY CANADIAN
Mortgage calculations
The majority of homeowners are just waiting on the day when they have made the final mortgage payment on their home and now own it outright. For most people, their home is and will be their biggest debt and the faster you can unburden it, the better; but how? This is where you can employ the services of a mortgage calculator and determine the interest you can save by increasing your regular mortgage payment?
To clarify the mortgage related financial terms; the original amount is that financed with your mortgage, it’s not to be confused with what is still owed at the present time, which is the principal balance. Amortization refers to the number of years agreed for repayment of the loan, usually 20 or 25 years, and the annual interest rate charged. Mortgage payments are made on a frequency of monthly, weekly, bi-weekly or bi monthly.
Accelerated payments
Your mortgage calculator will display the option of an accelerated weekly payment calculation. This is achieved by taking a monthly payment schedule and apportioning four weeks in each month. The accelerated weekly payment is calculated by taking your normal monthly payment and dividing it by four. As you have made 52 weekly payments, at the year end, you will have paid an additional one monthly payment. The advantage is that this extra payment accelerates paying off your loan, by it being apportioned directly against the principal loan amount.
Looking at this single payment result quickly, it may not seem like a significant savings. However, the ripple effect of this type of payment can effectively save you thousands of dollars in interest and reduce the term of your mortgage by a large number of years! The same principle applies to an accelerated bi-weekly payment, which can be determined on your mortgage calculator by dividing your monthly payment by two, converting it into 26 bi-weekly payments. Similar to weekly accelerated payments you are effectively paying one extra monthly payment each year.
Lump sum impact
Making lump sum payments could provide an even greater impact on your outstanding, as this type of payment is also applied to the principal mortgage amount. It results in an immediate reduction in the monthly interest you pay. This in turn has the effect of reducing your scheduled amortization period.
If you consider these options carefully, you will find yourself owning your greatest asset, well before you anticipated it!