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Each dollar, paid in addition to the mandatory payment, goes directly to pay-off the mortgage principal. Additional amounts decrease:
Method 1: Lump Sum Payments
You pay a certain amount that reduces your debt. The payment is applied directly to the principal amount of the mortgage.
Contracts of "Closed" mortgages can allow a pre-defined percentage (like 10%, 15% or 20% from the initial amount) to be paid once a year (or many times during a year with a certain minimum amount of one payment, like not less than $1000). For example, if you take a 300K mortgage with 10% Lump Sum Payments allowed, you can repay up to 30K after the 1st year, then up to 30K after the 2nd year etc. Of course, there is no such percent limit in "Open" mortgages where any amount can be repaid at any moment.
Method 2: Accelerated Payments
Annual payment is increased in the amount of one monthly payment, i.e. in 1 / 12 = 8.33%.
The number of payments remains same (you don't really perform one more payment transaction per year); instead, amount of each payment is increased in in 8.33%. In other words, the extra monthly payment is spread out between all existing payments evenly. For example: if the regular (not-accelerated) payment is 2,000 per month (24,000 per year), then the accelerated payment is 2,166.67 per month, i.e 8.33% more (that results in 26,000 per year which equals to the not-accelerated 24,000 plus one not-accelerated monthly payment of 2,000).
Even if your payments are not monthly (but bi-weekly or semi-monthly), the annual payment is still increased in the amount of one monthly payment, i.e. it will be 1/12 (or 8.33%) more (like 26,000 against 24,000). For example, if you pay bi-weekly, each payment will be 76.93 dollars more, or 1,000.00 instead of 923.08; if you pay twice a month, each payment will be 83.34 dollars more, i.e. 1,083.34 instead of 1,000.00.
The most popular acceleration program is "accelerated bi-weekly". It is usually compared to "twice a month": the same amount, which was paid 2 times per months, will be paid 1 time per two weeks. That is easy to understand, but the same calculation is behind it (the half-month amount will be paid 26 times per year rather than 24).
Accelerated Bi-weekly Payment Calculator
If payments are accelerated during the whole amortization period, the mortgage will be paid off in 22 years and 5 months instead of 25 years!
Accelerated Payments can be requested before or after the first mortgage payment (i.e. you can request them when you are taking the mortgage, or later).
You can cancel acceleration at any moment if you find that it can no longer be afforded.
Method 3: Increased Payments
The payment amount is increased for a certain percentage (10%, 25%, 50% - up to 100%) or a definite amount (like $100 or $300).
Required to be requested after the first mortgage payment (so, you cannot request it when you are taking the mortgage).
Most lenders will allow you to lower your payment to an amount no less than the original payment amount if you find that the increased payment can no longer be afforded.
Once you are interested in obtaining a mortgage, then you most likely will also be interested in the help of an experienced real estate agent: