Mortgage hack:
If you divide your current mortgage by 4 and pay weekly, you’ll end up making 52 payments per year. This will save you thousands in interest and shave years off your term. It’s called accelerated weekly payments. Ask your lender.
Accelerated mortgage payments are a strategy for paying off your home loan faster and reducing the amount of interest you pay over the loan term. This approach can take various forms, such as making an extra monthly payment annually, biweekly payments, or adding to the amount you pay each month.
These forms include making one extra monthly payment each year, paying half of your monthly payment every two weeks, or simply adding more to your monthly payment.
If you have the means, you might consider making accelerated payments to reduce your loan balance faster, which could save you money on interest in the long run. However, be mindful of the terms of your mortgage, as some lenders may have stipulations regarding extra payments. You could be on the hook for a prepayment penalty that could outweigh the benefit of eliminating your home loan balance ahead of schedule.
What Is a Mortgage Accelerator Program?
A mortgage accelerator program is a strategy that helps you pay off your mortgage faster than the typical repayment schedule.
How Does a Mortgage Accelerator Program Work?
Mortgage accelerator programs involve making extra payments on your mortgage to reduce the principal balance more quickly. As your principal balance drops, you also decrease the amount of interest you pay over the life of the loan.
Common methods include using a home equity line of credit to make lump-sum payments toward the mortgage. Or you can increase the frequency or amount of your monthly payments.
Advantages Of Accelerated Mortgage Payments
Accelerated mortgage payments offer many benefits to homeowners.
Interest Savings
When you opt for accelerated mortgage payments, you can potentially save thousands of dollars in interest charges. By paying more than your standard monthly payment, you reduce the principal balance faster. Since interest is calculated on the remaining balance, a smaller balance means less interest accrues over the life of the loan.
Faster Equity Building
Making extra payments on your mortgage results in more of your payment going towards the principal rather than interest. This practice not only reduces the amount you pay in interest but also builds your equity at a quicker pace. Equity represents the portion of the home that you own outright, which can be beneficial if you plan to tap into your home equity through a cash-out refinance or sell in the near future.
Shorter Mortgage Term
Paying above your regular monthly payment translates to a shorter mortgage term. With each additional payment, you’re taking months or even years off the life of your loan. The end result is achieving full ownership of your property sooner to create more wiggle room in your budget.
Disadvantages Of Accelerated Mortgage Payments
While making accelerated mortgage payments can lead to an early payoff and interest savings, there are potential drawbacks to be aware of.
Affordability Concerns
If you opt for accelerated mortgage payments, you’re committing to higher monthly expenses. It’s important to ensure this does not stretch your budget too thin or jeopardize your ability to cover other vital financial obligations or save for emergencies.
Lesser Tax Savings
With a standard mortgage loan, the interest you pay is often tax-deductible. By accelerating your payments, you reduce the amount of mortgage interest paid, potentially leading to fewer tax deductions.
Penalties For Early Repayment
Some mortgage agreements enforce a prepayment penalty. This means if you pay off your mortgage loan early, you could incur additional costs, mitigating some of the financial benefits of acceleration. Always read your loan agreement carefully to understand any penalties that may apply.
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