Mortgage Payment Options in Canada

Mortgage Payment Options: How Accelerated Payments Save You Money

You have the option to make mortgage payments different frequencies: monthly, semi-monthly, bi-weekly, accelerated bi-weekly, weekly and accelerated weekly. Each has pros and cons to be aware of.

When you are approved for a mortgage, you then get to choose the frequency of your mortgage payments, or how often you want to pay. Once-monthly mortgage payments are typical, but some mortgage lenders may allow other options.

Accelerated payments — mortgage payments made more frequently than once a month — can help you pay off your mortgage even faster, helping you save money on interest.

Mortgage payment options

Canadians have several mortgage payment frequency options, though some lenders may not offer all of them. If you’re particularly interested in a specific payment option, make sure to ask your lender early if it’s available when you submit your mortgage application.

Monthly. Monthly mortgage payments are the default. You make 12 payments per year on the same day every month.
Semi-monthly. With this option, you make payments twice a month. To get the semi-monthly payment amount, simply divide your monthly mortgage payment by 2. You’ll pay the same total amount per year as you would with monthly mortgage payments, but some people prefer to make smaller semi-monthly payments that line up with their paycheques.
Bi-weekly. You make payments every two weeks, which is slightly different than twice a month. To calculate bi-weekly payments, take the monthly amount, multiply by 12 and divide by 26 payments. Again, you’ll pay the same total amount annually as you would if you paid monthly.
Accelerated bi-weekly. You make payments every two weeks, but with the accelerated option, you do the math a little differently. Divide the monthly payment by two to get your payment amount. By making 26 of these payments over the course of a year, you’ll make the equivalent of an extra monthly payment compared to a non-accelerated option. This strategy can help you pay off your mortgage faster, hence the name “accelerated.”.
Weekly. You make weekly payments. Multiply the monthly amount by 12, then divide by 52. This will be the same amount annually as you would pay with monthly payments.
Accelerated weekly. You pay weekly, but at an accelerated rate. To get your accelerated weekly payment amount, divide your monthly payment by four, then multiply the result by 52. As with accelerated bi-weekly payments, this works out to about one extra payment per year.

There is no bad option for your mortgage payments, so you can choose whatever fits best for you. But, as mentioned earlier, more frequent payments allow you to pay off your mortgage principal faster, which means that accelerated options can help you save thousands of dollars in interest over the life of your mortgage. So, if they fit with your budget and life, it is in your best interest to consider accelerated mortgage payments.

» MORE: The difference between fixed and variable-rate mortgages

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What costs are included in mortgage payments?

When you are considering your mortgage, remember that you aren’t just paying back the amount of the loan. A mortgage has two parts: the principal (your loan amount) and the interest.

Since interest is calculated on the amount of principal you owe, the longer you take to pay back your mortgage, the more interest you will end up paying. This is why accelerated payments, which allow you to pay off your mortgage faster, work in your favour. You can potentially save thousands of dollars in interest over the life of your mortgage.

How mortgage payments are calculated

How your mortgage payments are calculated depends on the frequency option you choose, as well as your down payment amount, amortization period, term and interest rate, as well as whether your property taxes are collected along with your mortgage payments.

However, one of the biggest questions about how payments are calculated comes down to the difference between regular and accelerated payments. Let’s take a look at how accelerating bi-weekly payments affects the time and cost of repaying a mortgage.

Example: Accelerated bi-weekly payment vs. bi-weekly payment

Bi-weekly is every two weeks, right? So how does one of these payment schedules end up being faster than the other? Here’s how accelerated mortgage payments work.

With bi-weekly payments, you multiply the monthly payment amount by 12 and then divide by 26 payments. The total amount that you pay per year is the same as if you paid your mortgage monthly. However, breaking it up into smaller payments every two weeks is often more manageable for a household budget, especially if you time your payments to be withdrawn right after your paycheque is deposited.

With accelerated bi-weekly payments, you divide the monthly payment amount by two, so your individual payments are a little higher than the regular bi-weekly amount. That amount adds up over the 26 payments (one every two weeks) you make over the course of the year, so you wind up paying about the equivalent of one extra monthly payment per year. It may not seem like a big difference, but over the course of time the difference can add up pretty quickly.

Here’s an example:

To keep it simple, let’s pretend your monthly mortgage payment is $1,000.

If you choose a bi-weekly payment, that would mean:

$1,000 x 12 = $12,000 per year

$12,000 / 26 = $461.54 for each bi-weekly payment

If you choose an accelerated bi-weekly payment, however, your calculation will look like this:

$1,000 / 2 = $500 per accelerated bi-weekly payment

$500 x 26 = $13,000 per year

As you can see, by choosing the accelerated bi-weekly payment, you are paying off an extra $1,000 of your mortgage every year. This strategy helps you pay down the loan sooner — and pay less in interest over the life of your mortgage.

Now that you understand how the regular vs. accelerated payments are calculated, you can use an online mortgage payment calculator to help you quickly figure out your payment options.

» DISCOVER: How much mortgage can you afford?

When are mortgage payments due?

Mortgage payment dates are typically set when you finalize your mortgage. If possible, it’s a good idea to time your payments to your pay schedule.

For example, if you get paid on the first and the 15th of the month, you may want to choose a payment schedule that falls in line with these dates, such as semi-monthly, bi-weekly, or accelerated bi-weekly. That way you can take care of the payments right after you receive your paycheque, rather than making a lump-sum payment once a month.

If something changes in your pay schedule, you can usually request to change the mortgage payment dates.

» MORE: What’s the difference between an open and closed mortgage?

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The Cost of Breaking a Mortgage Contract

If you change your mortgage contract mid-term, expect to pay for it. Your penalty could be three months’ interest or the amount determined by your lender’s interest rate differential.