Mortgage Payment Frequency Options
Marci • February 7, 2014
Here you go…….Everything you ever wanted to know about Mortgage Payments!! I am asked on a regular basis about different types of mortgage payment options. Below is a brief summary of each and some definitions to help clear up any confusion you may have.
What are your PAYMENT FREQUENCY OPTIONS?
Definition : Payments consisting of both a principal and an interest component, paid on a regular basis during the term of the mortgage. Refers to how often and when you can make these payments.
Options :
- Monthly (any day of the month usually between the 1st and 28th)
- Weekly (any day of the work week, 52 payments per year
- Bi-Weekly (every other week, 26 payments per year)
- Semi-Monthly (twice per month, 24 payments per year, e.g. on the 1st and 15th of each month
- Plus accelerated weekly and bi-weekly
What is an accelerated bi-weekly payment?
- Accelerated Bi-Weekly payments are exactly half of a regular monthly payment amount BUT it is collected every two weeks. This means you make 26 payments per year
For example, if the monthly payment is $1,000 then the accelerated bi-weekly payment will be $500
o If you paid monthly you would pay $1,000 x 12 months = $12,000 per year
o Paying accelerated bi-weekly you would pay $500 x 26 = $13,000 per year
This results in you paying an extra $1,000 off your mortgage each year – hence accelerating how fast you pay it back. Remember, twice a year you will have three payments in one month. Accelerated weekly refers to monthly payment divided by 4!
What is a non-accelerated bi-weekly payment ?
- Non-accelerated is taking the regular monthly payment and times by 12 months, then d ivide this into 26 payments
For example, if the monthly payment is $1,000 then the non-accelerated bi-weekly payment will be $461.54
o If you paid monthly you would pay $1,000 x 12 months = $12,000
o Paying non-accelerated bi-weekly you would still pay $12,000 = $461.54 x 26 = $12,000
This results in you not paying any extra off your mortgage each year – hence non-accelerating . Remember, twice a year you will still have three payments in the one month
So let’s compare the payments and savings between these two options; regular monthly and accelerated bi-weekly payments:
$250,000 mortgage with a 25 year amortization at 3.39% 5 Year Fixed Term:
Regular Monthly Over 5 Year Term
Monthly payment = $1,233.70
Total Payments each year = $14,804.40
Total Payments in 5 Years = $74,022.00
Total Interest Paid in 5 Years = $39,285.61
Total Principal Paid in 5 Years = $34,736.61
Balance owing in 5 Years = $215,263.39
Effective amortization = 25 years
Accelerated bi-weekly Over 5 Year Term
Monthly payment = $1,233.70/2 =
Bi-Weekly Payment of $616.85
Total Payments each year = $16,038.10
Total Payments in 5 Years = $80,190.50
Total Interest Paid in 5 Years = $38,680.82
Total Principal Paid in 5 Years = $41,510.98
Balance owing in 5 Years = $208,489.02
Effective amortization = 22 Years 2 Months
So how do you select the right one for you?
- Determine which payment option you actually qualify for
- Review what payment options the lender offers
- Consider aligning your payment frequency with how often you get paid each month e.g. if you are paid every two weeks, then consider accelerated bi-weekly payments to align with each pay cheque
- The more often you pay, the less interest you will pay
- You can always adjust this at any time and change
My recommendation
: Pay accelerated bi-weekly if you can afford it, as it forces you to pay more.
By paying your mortgage off sooner you will reduce your debt and save unnecessary interest – plus a forced savings plan for the future! If you have additional questions please contact me! marci@askmarci.ca
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LET'S TALK
MARCI DEANE
MORTGAGE BROKER
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The first step is to start a conversation with me.
