Ritu and Mahen Agrawal P. Eng.
Mortgage Planner and Financial Advisor
Unlock the Mystery of Payment Frequency!!!
Very often there is a confusion on mortgage payment frequency as to which one is better on mortgage savings? There are several payment frequency such as monthly payment, semi-monthly payment, bi-weekly payment, weekly payment and then accelerated bi-weekly payment and accelerated weekly payment. To understand all of these various options of payment frequency, let's consider a mortgage of $400,000 with an average rate of 4.00% and 30 yr amortization.
* Mortgage Savings is compared with Monthly payment frequency as baseline.
What is the difference between Regular Payment and Accelerated Payment?
To get a regular bi-weekly payment, the monthly payment of $1902.07 is multiplied by 12 to get the true annual payment of $22,824.84. Then the annual payment is divided by 26 payment period per year to get a regular bi-weekly payment of $877.88. Thus with regular bi-weekly payment the amount you pay annually is still the same as that of monthly payment and you are not changing anything.
To get an accelerated bi-weekly payment, the monthly payment of $1902.07 is simply divided by 2 to get accelerated bi-weekly payment of $951.035. Thus with accelerated bi-weekly payment the amount you pay annually is $24,726.91 which is an extra monthly payment of $1902.07 towards principal every year. So when the year is done on a Accelerated payment you have paid equal to 13 months payments over a 12 month period. This is equivalent to 8.33% of extra monthly payment made towards principal which can save yourself close to 4 years of payment over life of mortgage.
Lets see this from a bigger picture and understand the truth about a mortgage savings. With regular bi-weekly payment, the total interest paid over 30 years is $283,580. Going with accelerated bi-weekly payment the total interest paid for same mortgage is $239,884. Thus, simply changing payment frequency to "Accelerated" payment will shorten the mortgage life by 4 years and save you mortgage interest of $43,696.
If you are having any of the following challenges with Payment Frequency and looking for professional help to obtain solution or to save much more on mortgage interests with our unique saving strategies, please contact us.
With current market situation and tightening of mortgage rules by Government of Canada (OSFI), we have access to 20+ big and small banks providing you the mortgage solution and flexibility that meet your personal needs. We are Mortgage Professionals to help you plan for home ownership (i.e. purchase, pre-approvals, cash back, renewals, renovations), provide step by step guidance to prepare for mortgage financing and implement personalized savings strategies to payoff mortgage sooner. There is no cost for our expert services and to seek for professional help you can CONTACT US.
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