Canada First Mortgage - Calgary Alberta

Monthly Payment Frequency

 

You have decided which mortgage best suits you, and now it’s time to choose your payment frequency!  The payment frequency is simply an installment plan describing ‘when’ you pay your loan back.  Let’s examine the differences, benefits, and pitfalls to each payment frequency below: 

Monthly:  Simply put, you make your payments on your mortgage each month on a set day during the month.

Bi-Weekly: You have probably heard about a bi-weekly payment frequency, but do you know that there are two kinds of bi-weekly payments?  One is definitely more beneficial to the other, here’s how…

  1. Bi-weekly Regular:  The bi-weekly regular payments are usually chosen for the convenience of what day your paydays fall on – that’s really the only benefit.  For the purposes of using round numbers let’s say that your monthly payment is $1000.00.  With a bi-weekly regular payment, you take your monthly payment, times (X) it by 12, and divide by 26.  In this particular case your bi-weekly regular payment works out to $461.54.

    (Payments work out to $461.54. Times (X) this figure by 26 (equals $12,000.00) and you get a total yearly mortgage contribution as what is indicative to a MONTHLY payment frequency!)

    Yes you creating a savings over time (very small) by making your payments quicker than what you would versus the monthly payment, however let’s look at the OTHER bi-weekly payment…

  2. Bi-weekly Accelerated Let’s still assume that your monthly payment is $1000.00.  With the accelerated plan, you cut your $1000.00/month payment exactly in half ($500.00), and make your payment every two weeks!  In turn, you may not be paying your mortgage exactly on your paydays; however you are getting exactly one month MORE payment per year. 

    (Payments work out to $500.00.  Times (X) this figure by 26 (equals $13,000.00) and you get a total yearly mortgage contribution reflective to one extra month’s payment! 

Over the course of the amortization (the life of the loan), this makes a dramatic difference how long you are paying your mortgage.  The most important thing to remember is this: the longer you pay your mortgage, the more interest you are paying; therefore choosing a bi-weekly accelerated payment plan will assist you in THOUSANDS of dollars in interest payments.  It’s well worth it to you in the long run.

Let’s also look at an amortization schedule...

In keeping with simplistic numbers, let’s assume that you have a mortgage amount of $100,000.00 and you have chosen a 5 year term @ 5.00% and have signed onto a 25 year amortization period...at the end of the 5th year it should look something like this:

Payment Frequency
Principle Paid
Interest Paid
Balance
Amoritization Left
Monthly
$11,492.14
$23,403.86
$88,507.86
20 yrs
Bi-Weekly Regular
$11,493.15
$23,365.05
$88,506.85
20 yrs
Bi-Weekly Accelerated
$14,831.34
$22,972.66
$85,168.66
16yrs. 6 mos.
Weekly
$11,491.22
$23,348.78
$88,508.78
20 yrs
Weekly Accelerated
$14,851.61
$22,952.39
$85,148.39
16yrs. 6 mos.

As you can see, the most beneficial payment plans are the accelerated plans.  I’ve placed the option for weekly, and weekly accelerated payment frequency in for the purposes of comparison, however not ALL lenders will allow the option for weekly or weekly accelerated payment plans.  Get us to run the numbers for YOUR specific situation so that you can rest assured that you are choosing the best fit for your needs!

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Canadian Mortgage Experts - Canada First
Dan & Stacey Mass
Calgary, Alberta
Direct: 403-650-6596
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