Accelerated mortgages are a type of mortgage where you make larger payments each month in order to pay off your debt quicker. But is this option right for you? Here, we’ll answer some common questions about accelerated mortgages so that you can make the best decision for your finances.
What is an Accelerated Mortgage?
An accelerated mortgage is a type of loan in which the borrower pays off their debt more quickly by making small, regular payments that add up to an extra monthly payment each year.
Monthly mortgage payments are popular among Canadians, although they have the option of paying semimonthly, biweekly, or weekly. Those who choose the weekly or biweekly options may use the accelerated payment strategy. This method shortens the life span of your mortgage and gets you debt-free sooner.
Example of Accelerated Mortgage Math
Let’s look at a simple example of how accelerated mortgages work. Assume Emma has a monthly mortgage payment of $1,000 per month for a total of $12,000 in yearly payments. She is thinking about switching to a biweekly schedule. Because she’d have to make 26 payments each year to maintain her current rate of advancement, she’d need to make every payment in the amount of $462, which is$12,000 divided by 26.
Emma is eager to improve her earnings, so she investigates an accelerated biweekly payment plan. She would make the equivalent of one extra monthly payment each year for a total of $13,000 per year under this system. This sum when divided by 26 gives a five-month acceleration over her non-accelerated biweekly rate. Emma will advance her schedule by five months over the course of a five-year term.
Is an Accelerated Mortgage Schedule Right for Me?
That’s hard to say since we don’t even know you (although, a free consultation may soon change that!). It is true that an accelerated mortgage strategy will shorten the life of your mortgage, resulting in you paying less overall interest over time. People, however, tend to underestimate the amount of interest they will save with an accelerated mortgage.
Consider: can your monthly budget withstand the increased hit? If you answered yes, an accelerated mortgage may be a good option for you. If not, you may stick to a more typical payment plan rather than going all out with an accelerated mortgage.
What are the Opportunity Costs of Accelerated Mortgages?
If you can handle this type of mortgage schedule, you’ll save money on your mortgage. That appears to be a great idea, but it’s also important to think about what else you could have done with the cash. It might have been invested in RSPs, lowering taxable income. This may assist you to save for another purchase, such as an investment property, which may be a more beneficial use of funds.
Are Accelerated Mortgages Worth It?
Ultimately, it’s your call. Your income, financial stability, and long-term goals must be taken into consideration when you make this decision. Some people want to get ahead by paying their mortgage down more quickly. Others would rather put the extra money towards investments, home renovations, or maybe a dream trip. It’s up to you!
To help you make well-informed decisions, we at Asim Ali want to assist you in determining the alternatives and their ramifications. We provide free consultations, where we’ll help you figure out what’s the finest option for you based on your financial objectives, economic environment, and attitude toward debt.