Mortgage Question Bi-weekly Payments, TD accelerated plan

[Nechako87]

Assumptions:
1. On a regular bi-weekly payment schedule, I can double my payment and the excess goes straight to my principal. This can happen every payment. I am not charged or penalized, and can still pay 15% of the original principal loan amount on each anniversary.

(example, my bi-weekly payment is 500, I want to pay 600 bi-weekly. Therefore $100 of each bi-weekly payment goes to my principal, essentially paying it down and incurring less interest on subsequent payments.)

2. TD's accelerated schedule is a bi-weekly payment schedule calculated as 24 payments per year. This means a higher bi-weekly payment. There is interest calculated for all 26 payments per year (no payments go straight to principal).


If those assumptions are not true, then the rest of this may be incorrect.


On a normal bi-weekly payment, our payments will be $531.96
Over the 4 year term we will pay:
$55,324.25 Overall
$26,787.96 Interest
$28,536.29 Principal

At the end of our 4 year term our balance will be $217,855.32

Using TD's "accelerated" bi-weekly payment, our payments will be $576.31
Over the 4 year term we will pay:
$59,936.49 Overall
$28,870.05 Interest
$31,066.44 Principal

At the end of our 4 year term our balance will be $215,325.17

If we use a normal bi-weekly payment schedule, and ADD the difference in payments between TD's accelerated schedule. I am assuming the extra deposit goes straight to principal.
Payment = $576.31, $531.96 (base) + $44.35 (to principal)
$59,936.49 Overall
$26,514.66 Interest
$33,421.83 Principal

At the end of our 4 year term our balance will be $212,969.78


This is where I don't understand. If I was going to pay $579.31 as per TD's accelerated schedule, why wouldn't I just pay my regular bi-weekly payment ($531.96) and add the difference? My $44.35 goes straight to principal instead of being mixed with interest. I end up paying my MORE towards my principal but paying the SAME OVERALL over the 4 year term.


I'm using excel's PMT calculation to get mortgage payments and so forth...

Thanks!

[Gnomes]

It certainly would seem like adding money on top of regular biweekly gain more value than the typical accelerated biweekly. There must be a reason why everyone does not do that and I also want to know why

[DaFonz]

Originally Posted by Nechako87

Assumptions:
1. On a regular bi-weekly payment schedule, I can double my payment and the excess goes straight to my principal. This can happen every payment. I am not charged or penalized, and can still pay 15% of the original principal loan amount on each anniversary.

(example, my bi-weekly payment is 500, I want to pay 600 bi-weekly. Therefore $100 of each bi-weekly payment goes to my principal, essentially paying it down and incurring less interest on subsequent payments.)

2. TD's accelerated schedule is a bi-weekly payment schedule calculated as 24 payments per year. This means a higher bi-weekly payment. There is interest calculated for all 26 payments per year (no payments go straight to principal).


If those assumptions are not true, then the rest of this may be incorrect.


On a normal bi-weekly payment, our payments will be $531.96
Over the 4 year term we will pay:
$55,324.25 Overall
$26,787.96 Interest
$28,536.29 Principal

At the end of our 4 year term our balance will be $217,855.32

Using TD's "accelerated" bi-weekly payment, our payments will be $576.31
Over the 4 year term we will pay:
$59,936.49 Overall
$28,870.05 Interest
$31,066.44 Principal

At the end of our 4 year term our balance will be $215,325.17

If we use a normal bi-weekly payment schedule, and ADD the difference in payments between TD's accelerated schedule. I am assuming the extra deposit goes straight to principal.
Payment = $576.31, $531.96 (base) + $44.35 (to principal)
$59,936.49 Overall
$26,514.66 Interest
$33,421.83 Principal

At the end of our 4 year term our balance will be $212,969.78


This is where I don't understand. If I was going to pay $579.31 as per TD's accelerated schedule, why wouldn't I just pay my regular bi-weekly payment ($531.96) and add the difference? My $44.35 goes straight to principal instead of being mixed with interest. I end up paying my MORE towards my principal but paying the SAME OVERALL over the 4 year term.


I'm using excel's PMT calculation to get mortgage payments and so forth...

Thanks!

TD Canada Trust - Mortgages - Saving Money On Your Mortgage

Take your monthly payment and divide it by two (accelerated bi-weekly) and multiply by 26 to get your new annual payment.

I read what TD says differently. What they're saying is take your monthly payments (e.g. $600) and divide by 2 to get your biweekly payment (e.g. $300). Multiply that by 26 payments a year to get your total payment.

[Selanne_200]

From what I understand and what I saw on the TD website, it seems like the accelerated bi-weekly payment was only used to compare with a monthly payment. If you go on a normal bi-weekly payment, there shouldn't be any difference between your normal bi-weekly and the accelerated. The "accelerated" is only because you would make more OVERALL payments in a year than a monthly payment would. But yes, you logic would be right I believe, you might as well add extra onto your regular payment and have that go directly towards your principal since interests is calculated on the outstanding amount during each period (whether monthly or bi-weekly)