Is there a topic that is discussed more amongst Canadians than our mortgages? For those taking on a new mortgage or looking to renew their existing one, you might be wondering what you can do to reduce your mortgage and amortization. While choosing the best mortgage and mortgage rate is important to keeping monthly payments low, another factor to consider is whether to choose an accelerated or biweekly payment schedule.
By choosing an accelerated payment schedule your regular payments will rise. The long-term gain of this strategy is often worth it, as you will save thousands in interest and your overall amortization will be reduced.
This article will discuss the differences between a biweekly vs accelerated biweekly mortgage payment in Canada.
Mortgage Payment Schedules in Canada
In Canada, there are six different mortgage payment schedules that you can choose from. These are weekly, accelerated weekly, bi-weekly, accelerated bi-weekly, monthly, and semi-monthly. Here is a brief description of the differences between each payment schedule.
Monthly Mortgage Payments
Perhaps the most straightforward way to pay your mortgage and certainly the most popular schedule in Canada. With a monthly mortgage payment, you make 12 equal payments yearly, once per calendar month and usually on the same date each month.
Semi-Monthly Mortgage Payments
Semi-monthly mortgage payments are made twice per month, usually on either the 1st and 15th or the 16th and 30th. Contrary to popular belief, this is not the same as a bi-weekly payment. With a semi-monthly schedule, you will end up making 24 payments each year, while a bi-weekly schedule will make 26 payments.
Bi-Weekly Mortgage Payments
Bi-weekly mortgage payments take place every two weeks throughout the calendar year. This means there is the potential for months with three payments which adds up to 26 total payments. Bi-weekly payments are popular because they can be aligned with bi-weekly pay schedules.
Bi-Weekly Accelerated Mortgage Payments
Bi-weekly accelerated mortgage payments take your monthly payment amount and divide it by two, with 26 total payments throughout the year. The result is a slightly higher payment every two weeks than a normal bi-weekly payment. Over the long run, this schedule can save you tens of thousands of dollars and take years off of your amortization.
Weekly Mortgage Payments
As the name suggests, weekly mortgage payments happen 52 times per year or once per week. This schedule will pay off your mortgage faster than a monthly schedule and take months off of your amortization.
Accelerated Weekly Mortgage Payments
Similar to bi-weekly accelerated mortgage payments, an accelerated weekly schedule will take your monthly payment and divide it by four. You will still make 52 payments each year but those payment amounts will be slightly higher than with a weekly payment schedule.
How Much Are Bi-Weekly vs Accelerated Bi-Weekly Mortgage Payments?
Before we get started, it is important to note that bi-weekly payments of any kind are always a better long-term strategy than monthly payments. Many homeowners like monthly payments for their simplicity. They also could be collecting tenant rent from a basement suite or room which would only be paid once per month. However, choosing a bi-weekly option will lead to greater savings in the long term.
The major difference between a bi-weekly payment vs an accelerated bi-weekly payment is the number of payments in a year. Bi-weekly is twice per month, whereas accelerated bi-weekly means every two weeks. This means over the year, there will be 26 pay periods which equate to one whole extra month of payments. With the extra 13th month of mortgage payments, it is easy to see why accelerated bi-weekly mortgage payments can help you pay down your mortgage faster.
Between these two options, the benefits of paying off your mortgage on an accelerated bi-weekly schedule are clear. To illustrate this, we’ll use a fairly standard example of a Canadian mortgage to plug into our mortgage calculator: $500,000 in principal, a 5.5% interest rate, and a 25-year amortization period. It is also on a standard 5-year term. Note that for this example, we are calculating a static interest rate of 5.0% for the entire 25 years.
|Number of Payments||Mortgage Payment||Interest Paid over 25 years||Total Amortization|
|Accelerated Bi-Weekly||130||$1,525.98||$343,514.02||552 payments + 1 extra of $1,173.77|
The differences are staggering between a bi-weekly vs accelerated bi-weekly mortgage payment schedule. For just $118.19 extra every two weeks you will save $71,549.03 in interest and pay your mortgage off almost two years faster (98 weeks).
However, here is a look at the difference between an accelerated bi-weekly payment and a bi-weekly payment if the yearly payment was the same for both.
|Annual Payment||Mortgage Payment||Annual Interest|
As you can see, most of the interest savings result from making larger payments to reduce your mortgage faster. The majority of the savings from the 26 payments of an accelerated bi-weekly schedule, compared to the 24 payments of a regular bi-weekly one, come from the payment size rather than the increased frequency.
Things to Consider With Accelerated Bi-Weekly Mortgage Payments
The benefits are clearly illustrated in the calculations from the comparison between bi-weekly vs accelerated bi-weekly payments. But before you make the switch, there are some things you will definitely want to consider.
The Payments Are Higher
Using our example, the payments came to about $118.19 more every two weeks or $236.38 every month. Still, that equates to nearly $3,000 extra every year so make sure that you leave enough breathing room with your personal finances. If you really can’t afford the extra for accelerated bi-weekly payments, then at least consider a bi-weekly payment vs a monthly one.
Potential Costs for Switching to Accelerated Bi-Weekly Mortgage Payments
Every mortgage broker or bank is different. By switching to an accelerated bi-weekly plan you might incur some costs, especially if you do so before your renewal date. If there are costs for switching, it might negate some of the overall savings from switching.
More Frequent Payments Compared to Monthly Payments
If you are switching from a monthly payment structure to an accelerated bi-weekly schedule, you might find it more difficult to budget. After all, going from one payment per month to once every two weeks can be a bit of a shock to your budget and bank account. Always make sure your other bills and costs are accounted for in addition to your mortgage!
Biweekly vs Accelerated Biweekly Mortgage Payments: Which is Better?
When it comes to saving money and paying off your mortgage faster there is no contest. Choosing an accelerated biweekly mortgage schedule is much better in the long run. Think of it as a little bit of short-term pain for a lot of long-term gain.
Using our example, choosing an accelerated bi-weekly mortgage schedule resulted in savings of $71,549.03 and 98 fewer payments being made. All it took was an extra $118.19 every two weeks.
If you are still in the process of choosing a mortgage and are looking to battle higher interest rates with a more efficient payment schedule, consider accelerated bi-weekly mortgage payments for better long-term results.
FAQs About Biweekly & Accelerated Biweekly Mortgage Payments in Canada
Accelerated mortgage payments take your monthly mortgage payment and divide it into two for accelerated bi-weekly payments or four for accelerated weekly payments. Over the course of a year, you will end up making more payments at a slightly higher amount.
Accelerated bi-weekly mortgage payments take the amount of a monthly mortgage payment and divide that figure by two. This will result in 26 payments in a year compared to 24 payments in a regular bi-weekly schedule with slightly higher payment amounts.
To calculate the amount you will pay on an accelerated bi-weekly mortgage payment: take your monthly mortgage payment amount, multiply it by 13 and then divide it by 26. Since you will be making 26 payments, it is the equivalent of making one extra monthly payment toward your principal.
Yes, you can switch from an accelerated bi-weekly mortgage payment to a bi-weekly schedule. You will need to consult with your mortgage provider and there could potentially be some fees involved if you are not at the end of your mortgage term.
Yes, you can always contact your mortgage provider before the end of your term to change the frequency. This might result in additional fees or even paying interest on the adjusted amount from the previous payment period.
Yes, most mortgage providers in Canada will allow you to make additional payments. These can be a double-up program where you make larger payments than required during each period. You can also make what is referred to as an anniversary payment which is a lump sum towards the principal every year. Note that most additional mortgage payments are capped to a certain amount.
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