So you’re all set and you’ve found your new home. You’ve now received a commitment from your mortgage broker and lender however there’s an area on the commitment form that provides all these payment options and you’re unsure of what it all means and how it affects your mortgage then look no further for a quick and easy explanation.
In Canada when you take on a mortgage you typically have the option of five mortgage payment options:
- Monthly
- Bi-Weekly
- Accelerated Bi-Weekly
- Weekly
- Accelerated Weekly
A monthly mortgage payment, which is typically the most common is when your mortgage payment is withdrawn from you bank account on the same day of every month (i.e. on the 1st). You would make 12 payments per year in this scenario.
A bi-weekly mortgage payment is when your monthly mortgage payment is multiplied by 12 months and divided by the 26 pay periods in a year, thus making 26 payments per year. You’re dividing up the payments in two per month however still paying the same amount as the monthly option.
An accelerated bi-weekly mortgage payment is when your monthly mortgage payment is divided by two and the amount is withdrawn from your bank account every two weeks. With an accelerated bi-weekly mortgage payment, you still make 26 payments per year, but the payment amount is slightly more than the regular bi-weekly mortgage payment.
A weekly mortgage payment is when your monthly mortgage payment is multiplied by 12 months and divided by the 52 weeks in a year. You would be making a payment every week however the total amount paid per year is still equivalent to the monthly payment option.
An accelerated weekly mortgage payment is when your monthly mortgage payment is divided by 4 and the amount is withdrawn from your bank account ever week. It’s still 52 payments in a year, but the payment is slightly higher than that of a regular weekly mortgage payment.
Although the regular and accelerated payments sound very similar, with the accelerated you will end up making approximately one extra payment a year which helps save you thousands of interest and helps pay off your mortgage that much quicker a few years quicker than anticipated.
Should you have any questions about your current mortgage or obtaining a mortgage don’t hesitate to reach out for a complimentary discovery call.