Mortgage 101: Your Payment Frequency Options

February 6, 2013

Mortgage Payment Frequency

You’ve got choice when it comes to deciding on how often you’d like to make your mortgage payments. The choice is there so you can try to sync your mortgage payments with your cashflow and pay schedule. Most salaried employees get paid bi-weekly which is why bi-weekly payments are the most popular.

calendar2But not all payment frequencies are the same.

Some payment frequencies actually accelerate your mortgage repayment allowing you to reduce the total amount of interest you pay over the life of your mortgage. Choosing an accelerated payment also gets you out of mortgage debt years sooner.
Let’s have a look at the 6 different mortgage payment frequencies offered by most lenders. From least frequent to most frequent.

Payment Option Details

[table]
Payment Frequency* Description
Monthly*  One payment per month for a total of 12 per year.
Semi-monthly*  Two payments per month for a total of 24 for the year. With this option the total amount you pay over the year is the same as with the monthly payment (monthly payment ÷ 2).
Biweekly*  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). This option keeps the total payment over the year the same as with the monthly payment (monthly payment x 12 months ÷ 26).
Accelerated Biweekly* A payment of half the monthly payment every two weeks. Since there are 52 weeks in a year you will make 26 payments a year (52 ÷ 2). To calculate the amount of your accelerated biweekly payments, divide your monthly payment by two (for example: $1,000 ÷ 2 = $500). With this payment frequency you will make the equivalent of one extra monthly payment per year. You will pay off your mortgage faster and save in interest charges.
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).
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. You will pay off your mortgage faster and save in interest charges.
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Now let’s consider an example to show what type of difference an accelerated payment can make over the life of your mortgage.

Example: Monthly vs. Accelerated Biweekly

Jose 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

[table]
*Monthly* Accelerated Biweekly
Number of payment per year* 12* 26(52 weeks a year/2)
Payment* $1,383* $691
Total payments per year (principal & interest)* $16,596* $17,966
Principal paid over the amortization period* $250,000* $250,00
Interest paid over the amortization period* $165,102* $140,062
Interest saved* -* $25,040
Number of years to repay mortgage* 25y* 21y 9m
Years saved* -* 3y 3m
[/table]
As you can see in this example, Jose is much better off making the accelerated biweekly payments. He is going pay off his mortgage 3 years 3 months sooner and he will save more than $25,000 in interest payments to the lender.
For more info checkout this video I did recently for a Mortgage Math series:

As a mortgage broker I am focused on helping borrowers save interest and pay their mortgages off sooner. I make all this information readily available to anyone who is interested for free.

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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.