When going through the details of a mortgage, many clients are frequently surprised that they have so many different options for payment frequency. Most assume you can only pay monthly or bi-weekly, but there are actually a bunch of different options available.
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Monthly (12 payments per year): You all know this one – you make a payment once a month on a set day during the month (i.e. the 23rd of every month).
Semi-Monthly (24 payments per year): In this case you make 2 monthly payments (exactly half of what your monthly payments would be) on set days during the month (i.e. the 5th and 20th of each month).
Bi-Weekly (26 payments per year): Bi-weekly payments are made every 2 weeks (a convenient option for many people who get paid every 2 weeks). For example, your mortgage payment would come out every other Friday (bi-weekly payments are always on the same day of the week – every other ____day).
Weekly (52 payments per year): I think you can guess where this one is going – make a payment every week, on the same day of the week.
Accelerated Bi-Weekly (26 payments per year): This (popular) accelerated program is an amalgamation between the semi-monthly and bi-weekly payment frequencies. Basically you pay the semi-monthly payment (which is slightly higher than the bi-weekly payment) at the bi-weekly frequency. In essence, you end up making a month’s worth of extra payments each year (but in little tiny doses every other week).
Accelerated Weekly (52 payments per year): Similar to the accelerated bi-weekly, but you make half of the semi-monthly payment every week (which again is slightly higher than the normal weekly payment), which also results in making a month’s worth of extra payments each year (but in even smaller weekly doses).[/box]
The benefits of the accelerated programs are obvious: pay a little bit extra every payment, pay a LOT less interest on your mortgage over time. On a typical Canadian mortgage, the difference between an accelerated bi-weekly payment schedule and a regular bi-weekly payment schedule is almost $30,000 (and mortgage-free 3.5+ years sooner) – all by paying just slightly more per month. Next time you’re working out the details of your mortgage with your bank or mortgage broker (first home purchase, refinance or renewal!), make sure to discuss the various payment frequencies – it can literally save you tens of thousands of dollars.
