Here are two examples that show the power of accelerated payments and adding an extra few bucks to your mortgage payment. Most people think they need to pay thousands against there mortgage each year to pay it down aggressively and therefore never do anything.
Here is a typical situation. Let’s take a $500,000 mortgage over 25-year amortization period with an average rate of 3.25%. (we know through the terms rates will change.). A regular monthly payment of $2430.83 over 25 years your total interest paid will be $229,248.96.
So, let’s say you took out a biweekly or weekly accelerated payment which means you pay every two weeks or every other weekly. It is still the same monthly payment broken down into 2 payments or 4. Your total interest paid is $200,056.46 and you pay down your mortgage in 23 years. So, 2 years sooner.
Let’s take a biweekly accelerated payment and add $100.00 to each payment or if you took weekly that would be $50.00 to each payment. Your total interest paid $176,742.08 and you pay down your mortgage in 18 years or 7 years sooner. WOW. So, by taken an accelerated payment and adding an extra $100.00 every 2 weeks you pay down your mortgage in 18 years and pay $52,506.00 less in interest then if you stuck with a regular monthly payment.