SEATTLE REAL ESTATE BLOG
SEATTLE REAL ESTATE BLOG
accelerated mortgage payments
Reis Residential
Reis Residential
A typical mortgage payment is paid to your lender once a month and is divided into principal and interest payments (you may also elect to pay property taxes in addition). These payments are amortized meaning that in the early stages of a loan you pay a lot more towards the interest payment than the principal portion of your loan. Towards the end of the loan most of your payments cover principal and less interest. However, if you pay more in a given month than your set mortgage amount, any additional dollar has to go towards the principal of your loan. This is what an accelerated mortgage payment does, by paying slightly more on your loan on a consistent monthly basis, you can save thousands of dollars and take potentially years off your loan.
There are three different ways to accelerate your mortgage payments: monthly payments with overpayment, bi-weekly accelerated and weekly accelerated.
Monthly with overpayment is when you continue to pay your regular monthly payment but overpay each month.
Bi-weekly acceleration is when you pay half your monthly payment every two weeks while weekly acceleration is when you pay a quarter of your monthly payment every week. As a result you end up making roughly one additional monthly payment in a year.
It really depends on which payment structure you choose and by how much you overpay. However, as an example below you will see how it saves you money.
Below is what your total mortgage would look like if you took a $650,000 loan at 4.5% interest with a 30 year term. It shows what you would pay if you only ever pay the monthly amount, overpay and pay weekly.
The overpayment calculated below assumes an additional $200/month.
Payment: $3,293 / month
Term: 30 years
Total Interest paid: $535,643
Total Payments: $1,185,643
Payment: $3,493 / month
Term: 26 years 8 months
Total Interest paid: $466,683
Total Payments: $1,116,683
Savings: $68,960
Payment: $1,646 / every 2 weeks
Term: 25 years 7 months
Total Interest paid: $443,568
Total Payments: $1,093,568
Savings: $92,075
Payment: $823 / week
Term: 25 years 7 months
Total Interest paid: $442,683
Total Payments: $1,092,683
Savings: $92,959
By splitting your monthly payment and paying it on a weekly basis, you can save $92,959 over the course of the loan and pay it off 4 years and 5 months earlier! The difference in cost per month is an additional $274 dollars but as you can see it really pays dividends.
If you were to decide to pay on a weekly basis but in addition overpay your mortgage you can really see the savings add up. In the same example as above, if you did the weekly payment but paid an additional $50 / week, over the course of the loan you would save $143,797 compared to just making your regular mortgage payment and shave about 7 years off the term. This equates to about an additional payment of roughly $491 / month.
Want to calculate your potential savings? I recommend this mortgage acceleration calculator.
This should not be taken as financial advice and I am not a qualified mortgage professional. If you think you could benefit from accelerated mortgage payments you should consult your mortgage and tax consultants.
Contact your Seattle Compass real estate team, Reis Residential at (206) 931-6147. Top-rated realtor Chris Reis and Compass affiliate brokers are here to help you master the Seattle real estate market and answer any questions on current market conditions.
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Chris Reis is a Seattle real estate agent affiliated with COMPASS real estate Seattle, a licensed real estate broker, and abides by equal housing opportunity laws. All material presented herein is intended for informational purposes only. Information is compiled from sources deemed reliable but is subject to errors, omissions, changes in price, condition, sale, or withdrawal without notice. no statement is made as to the accuracy of any description. All measurements and square footages are approximate. This is not intended to solicit property already listed. Nothing herein shall be construed as legal, accounting, or other professional advice outside the realm of top real estate company in Seattle.
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