Mortgage Payment Options: How Accelerated Payments Save You Money
When you are approved for a mortgage, you’ll 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 (also called rapid 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. More frequent payments may 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
Payment Options: Side-by-Side Comparison
You might have the option to have an “accelerated” or “rapid” payment. The best option for you may depend on whether you want extra payments built into your mortgage. Here’s how some of these options stack up:
Accelerated bi-weekly (or rapid bi-weekly) vs bi-weekly
Accelerated bi-weekly | Bi-weekly | |
|---|---|---|
Payment frequency | Every two weeks. Twice a year you’ll have a month with three payments. | Every two weeks. Twice a year you’ll have a month with three payments. |
Payment amount | Your monthly amount, divided by two. In the months with three payments, you’ll pay the equivalent of 1.5 monthly payments. In the other months, you’ll pay the equivalent of a standard monthly payment. | The amount you’d typically pay in a year, divided into 26 equal payments. You’ll pay a little more overall in three-payment months, but that just makes up for the other months, where you’ll pay a little less. |
The bottom line | You’ll make an “extra” payment each year equal to a standard monthly payment. You’ll pay your mortgage off sooner. | You pay at a quicker pace, but the total amount is the same as monthly payments. |
Mortgage bi-weekly vs monthly
Bi-weekly | Monthly | |
|---|---|---|
Payment frequency | Every two weeks. Twice a year you’ll have a month with three payments. | Monthly. |
Payment amount | The amount you’d pay in one year with monthly payments, divided into 26 equal payments. You’ll pay a little more overall in three-payment months, but that just makes up for the other months, where you’ll pay a little less. | Monthly payments are the default option on most mortgages. |
The bottom line | You pay at a quicker pace, but the total amount is the same as monthly payments. | This is the standard option, with a payment due the same day of each month. |
Interest is calculated on the amount of principal you owe, so the longer you take to pay back your mortgage, the more interest you will pay. Accelerated payments “force” you to pay down your principal faster than you otherwise would. You can potentially save thousands of dollars in interest over the life of your mortgage.
Example: Accelerated bi-weekly payment vs. bi-weekly payment
Bi-weekly payments
Multiply the monthly payment amount by 12 and then divide by 26. 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.
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
Accelerated bi-weekly payments
Divide the monthly payment amount by two. This results in payments that are a little higher than a regular bi-weekly amount. Because there are two months of the year in which you’ll make three payments, you’ll 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.
Pretend your monthly mortgage payment is $1,000.
If you choose an accelerated bi-weekly payment, that would mean::
$1,000 / 2 = $500 per accelerated bi-weekly payment
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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Clay Jarvis
Clay Jarvis
Clay Jarvis