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25 Sep

Which Mortgage Payment Frequency Is Best For You?

Mortgage Tips

Posted by: Chanele Langevin

Many people do not realize that there are options when it comes to paying off a mortgage faster than the actual Amortization period of the loan while also saving thousands of dollars in interest.

Most mortgages have an Amortization period of 25 years.  This means that the time it will take you to pay off the Mortgage in full would be 25 years.

As a Mortgage Agent, I am strictly looking out for the client’s best interests.  It is important to me to make sure that the homebuyer is aware of all options to save money within their mortgage.  There are a few ways that you, the homebuyer, can shorten the 25-year period and potentially save thousands of dollars that would have been interest payments on your mortgage loan.

The following payment frequencies are typically offered by most financial institutions:

  • MONTHLY – One payment per month for 12 months per year
  • SEMI-MONTHLY  – Two payments per month for a total of 24 payments per year
  • BI-WEEKLY – One payment being paid every 2 weeks.  The monthly payment is multiplied by 12 and then divided by 26
  • WEEKLY – One payment per week, total of 52 payments per year. The monthly payment is multiplied by 12 and divided by 52

These are the payment frequencies that save you the most interest over the life of your mortgage and as a result, shorten the Amortization Period:

  • ACCELERATED BI-WEEKLY – One payment of ½ the monthly payment every 2 weeks.  This is the equivalent of making one extra monthly payment per year
  • ACCELERATED WEEKLY – One payment of ¼ of the monthly payment every week.  This is the equivalent of making one extra monthly payment per year

Scenario

*The following is a scenario to show the differences in dollars:

A homebuyer has a $260,000 mortgage that has an amortization period of 25 years with an interest rate of 4%

Payment Frequency

# of payments per year

Payment Amount

Total Payments Per Year

Interest Saved on Mortgage

Monthly

12

$1,400

$16,800

$0

Semi-monthly

24

$700 ($1,400/2)

$16,800

$197

Bi-Weekly

26

$646 ($1,400×12/26)

$16,800

$212

Accelerated Bi-Weekly

26

$700 ($1,400/2)

$18,200

$21,273

Weekly

52

$323 ($1,400×12/52)

$16,800

$305

Accelerated Weekly

52

$350 ($1,400/4)

$18,200

$21,509

Choosing an accelerated payment frequency is the equivalent of making one extra payment each year and can result in paying off a mortgage 4 years sooner, while also saving $21,000 in interest over the entire amortization period.

For many people a mortgage is the largest financial investment they will make, as well as the longest period of time that they will be making payments.  I’ve had great success as a mortgage broker in Grande Prairie mainly because my priority is assisting my clients to make the best decisions with their mortgage. Find the mortgage payoff calculator under the “Refinance” tab of my website to gain an idea of what numbers and payment frequencies might work for you.  It is always best to consult a mortgage agent with questions as they will give an unbiased opinion and provide you with the best scenario for your needs.

*Reference