Mortgage 101 for Newbies: Monthly Payments 😏, Weekly Payments 🤔, Accelerated Weekly 😬?

December 26, 2019
mortgage payments question

But the internet says monthly? Well…here comes a shocker: the internet isn’t always 100% correct. I’ll wait while you sit down for this next part…you can actually choose to pay your mortgage as often as you want. 

The easy conversation about mortgage payments

Talking about your mortgage payment frequency doesn’t exactly roll off the tongue, but nonetheless, it’s worth talking about. You’ve got choices when it comes to deciding on how often you want to make your mortgage payments. The choice is there so you can make your mortgage payments on the same days you get paid. The reason bi-weekly mortgage payments are the most popular is because most people are paid every two weeks! But…that isn’t all there is to it.

 

Not all payment frequencies are the same.

What makes them different? Well, you might have heard of a little thing called interest. You might have also heard that people generally don’t like interest and want to pay as little of it as possible. Choosing the right payment frequency can actually speed up the repayment of your mortgage and reduce the total amount of interest you pay over the life of your mortgage. Hands up if you want to shave a few years off the life of your mortgage? Think of all the wonderful things you can do sooner in life without a mortgage. 

So pay attention when it comes to the selection of your mortgage repayment frequency.

 

There are six different mortgage payment frequencies offered by most lenders – which one is best for you? 

Let’s take a look from least frequent to most frequent.

Payment Option Details

  1. Monthly (12 payments each year)
  2. Semi-monthly (24 payments per year)
  3. Regular Bi-Weekly (Equivalent of 12 monthly payments in a year paid biweekly or 26 times)
  4. Accelerated Biweekly (Equivalent of 13 monthly payments in a year paid biweekly or 26 times) 
  5. Regular Weekly (Equivalent of 12 monthly payments in a year paid weekly or 52 times)
  6. Accelerated Weekly (Equivalent of 13 monthly payments in a year paid weekly or 52 times )

Let’s take a closer look at each of the 6 options. 

 

Monthly

One payment per month for a total of 12 per year. This is your default basic payment. 

It’s worth noting here that your monthly payment amount is based on 3 inputs: interest rate, mortgage amount and most importantly amortization (hyperlink: what is amortization). 

 

Semi-monthly

Two payments per month typically on the 1st & 15th for a total of 24 for the year. Your semi-monthly payments are determined by dividing your monthly payments in half. The total amount you pay over the year is the same as with the monthly payments. Bottom line: There is no “acceleration” effect or interest savings with semi-monthly payments. 

 

Regular Bi-weekly

A payment every two weeks. Since there are 52 weeks in a year the total number of payments over the year is 26 (52 ÷ 2). The actual payment amount is determined by dividing 12 months of monthly payments by 26. Bottom line: There is no “acceleration” effect or interest savings with regular bi-weekly payments.

 

Accelerated Biweekly

Accelerated bi-weekly payment is the deluxe and most popular payment frequency. It’s simple to calculate the amount of your accelerated biweekly payments, divide your monthly payment by two (for example $1,000 ÷ 2 = $500). Since there are 26 bi-weekly periods in a year, you will make the equivalent of one extra monthly payment per year. Bottom line: Accelerated bi-weekly pay periods are going to help you:

  • pay the mortgage off more quickly (win) & 
  • save you money in interest paid over the life of the mortgage (win).

 

Regular Weekly

One payment per week for a total of 52 payments for the year. The total annual payment remains the same as with the monthly payment (monthly payment x 12 months ÷ 52). Bottom line: There is no “acceleration” effect or interest savings with regular weekly payments.

 

Accelerated Weekly  

A payment of one-quarter of the monthly payment every week. To calculate the amount of your accelerated weekly payments divide your monthly payment by four (for example $1,000 ÷ 4 = $250). With this payment frequency, you will make the equivalent of one extra monthly payment per year. Bottom line: Accelerated weekly pay periods are going to help you:

  •  pay the mortgage off more quickly (win) & 
  • save you money in interest paid over the life of the mortgage (win).
  • Accelerated weekly payments will NOT save you more money than accelerated bi-weekly payments. They have virtually the same effect. 

 

Which one is best for you? 

Let’s consider an example to show the difference an accelerated payment can make over the life of your mortgage.

 

Example: Monthly vs. Accelerated Biweekly

Diego is trying to decide between paying his mortgage monthly or paying accelerated biweekly.

Details:

  • mortgage principal: $250,000
  • amortization: 25 years
  • interest rate: 4.50% for the entire mortgage amortization period

 

Monthly and Accelerate Biweekly Payment Comparison

Monthly 

$1,383 x 12 payments = $16,596

Accelerated Biweekly

$691 x 26 payments = $17,979

What’s the difference? By paying $1,383 more per year, Diego can pay off his mortgage three YEARS and three MONTH faster than with a monthly payment and he will save more than $25,000 in interest payments to the lender.

Awesome!

That’s three more years of being mortgage-free, and having the flexibility to use that money for something fun.

So, now you know that you have choices when it comes to how often you want to pay and you’ve taken a huge step in crafting the right mortgage for yourself! Know any other mortgage newbies? Share this blog and spread the word that mortgages don’t have to suck! 

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Christopher Molder

Mortgage Broker

Christopher is a mortgage broker based in Toronto, Canada. And a son of a broker too.He’s a second generation mortgage broker.Following in his father’s steps he joined the family mortgage business straight out of university.