Mortgage Payment Frequency
When taking out a mortgage, you have the option of choosing the payment frequency that suits you the most. Canadians have five different mortgage payment frequencies to choose from: monthly, bi-weekly, accelerated bi-weekly, weekly and accelerated weekly. While monthly payments are the most common, you can opt for more frequent payments to save on interest expenses over the life of the mortgage.
Let’s take a look at what the mortgage payments would look like under different payment frequencies using the following example:
- $300,000 mortgage
- 3% interest rate
- 25-year amortization period
Monthly Mortgage Payments
The most common mortgage payment frequency, monthly payments, means that the amount is deducted from your account once a month. With this payment frequency, you will end up making 12 payments in a year.
Based on the above example, the monthly payment would be $1,392.17 and the total interest paid over the 25-year term of the mortgage is $117,653.
Bi-Weekly Mortgage Payments
With bi-weekly mortgage payments, your monthly payments are multiplied by 12 and divided by 26 (typical number of pay periods per year). You will have payments deducted from your bank account every two weeks and you’ll end up making 26 payments each year.
Based on the same example, the bi-weekly payment would be $642.14 and the total interest paid over the term of the mortgage is $117,389.
Accelerated Bi-Weekly Mortgage Payments
An accelerated bi-weekly mortgage payment schedule still means that you will make 26 payments per year. However, the amount deducted will be slightly more than for bi-weekly mortgage payments. It is calculated by taking the monthly mortgage payment amount and dividing by two and is payable every two weeks.
Based on the same example, the bi-weekly payments under an accelerated schedule would be $696.08 and the total interest paid over the term of the mortgage is $103,568.
Weekly Mortgage Payments
Weekly payments are calculated by multiplying the monthly mortgage payment amount by 12 and dividing by 52. Payments are due weekly which results in a total of 52 payments per year.
Using the above example, the weekly payment amount would be $320.98 and the total interest paid over the term of the mortgage is $117,279.
Accelerated Weekly Mortgage Payments
Accelerated weekly payments are calculated by dividing the monthly mortgage payment amount by 4 and they are payable every week. This also results in 52 payments per year but payment amounts will be higher than that of a weekly payment schedule.
Using the same example, the weekly payments under an accelerated schedule would be $348.04 and the total interest paid over the term of the mortgage is $103,418.
Difference Between Regular and Accelerated Payments
The main difference between regular and accelerated payments lies in how the payment amount is calculated. Regular payment frequencies are calculated by simply multiplying the monthly payment amount by 12 and then dividing by payment frequency, for example, 26 for bi-weekly. To calculate payment amounts under an accelerated schedule, the monthly payment amount is instead divided by the frequency of payment periods within a month, for example 4 for weekly, with that amount falling due according to that same frequency, for example every week.
The number of payments made are the same for both payment schedules, but accelerated payments mean that you will be paying slightly more per payment. As shown through the above examples, homeowners can save a fair bit on interest expenses and pay off their mortgage faster using accelerated payments. However, accelerated weekly and bi-weekly payment schedules may not be a fit for everyone and new homeowners are often advised to select the payment frequency that is easiest for them to manage financially.