I like to review all the payment options for mortgage plans because they each have their benefits and it’s important to choose the plan that works best for you. When it comes to accelerated vs. regular (non-accelerated), it’s fair to say that accelerated will save you money in the long run. Here’s how it works:
Accelerated Payment Schedule
- The monthly payment is divided by 2 (bi-weekly) or by 4 (weekly).
- There are 52 weeks in a calendar year so if you make 26 bi-weekly payments, you are in effect paying your Lender the equivalent of 13 months of payments per year compared to 12 months payments in a regular repayment plan.
- This accelerated repayment of principal is what shortens your amortization.
- 13 monthly payments ÷ 26 = accelerated bi-weekly payment
- Example: ($449.96 per month x 13 months) ÷ 26 = $224.98 accelerated bi-weekly payment
Non-Accelerated or Regular Payment Plan
- The Lender takes 12 months worth of payments and divides this by either 26 or 52 to come up with the bi-weekly (or weekly) payment. For example, 1st & 15 of each month would be biweekly or the 1st of each month would be monthly.
- The Lender receives a stream of income of 12 monthly payments per year, there is no additional principal available to accelerate the amortization.
- 12 monthly payments ÷ 26 = regular bi-weekly payment
- Example: ($449.96 per month x 12 months) ÷ 26 = $207.67 regular bi-weekly payment
By choosing accelerated bi-weekly vs. regular bi-weekly payments results in one extra month of payments per year, which in turn shortens your amortization which means paying off the mortgage quicker.
If a client can afford the extra amount monthly, the accelerated repayment schedule is definitely worth it in the long run.
