Mortgage payment options

Mortgage payment options

Let’s start from the very beginning: what is a mortgage payment? Simply put, it is a regularly scheduled payment which includes principal and interest paid by borrower to lender of home loan. This payment is done according to a schedule. Depending on the lender, the borrower usually has options when it comes to the payment schedule. In most cases, the borrower will have the choice of Monthly payments (once a month), Semi-Monthly (on the 1st and 15th of each month), bi-weekly, accelerated Bi-Weekly, Non-Accelerated Bi-weekly (that is 26 payments per year), and weekly (52 payments per year). 

What is the main difference? Well, with any payment option listed above, the payments would begin after taking possession of the property. A monthly payment requires you to make a payment each month and it begins the month after taking possession of the property. If you choose a Bi-weekly plan, then you make a payment equal to half the monthly payment every two weeks. What is important to understand is that, in terms of payment, a biweekly is the same as a bimonthly. However, there are 26 biweekly payments in a year as opposed to 24 bimonthly payments. In other words, a biweekly generates an extra monthly payment every year, which has the advantage of shortening the term by a significant amount. 

A weekly payment represents the same amount in a year of the monthly option. The difference is that your monthly payment is multiplied by the 12 months in a year and then divided by 52 weeks to know how much you will be paying each week. So, what is the accelerated bi-weekly option? This simply means that your mortgage payments are half of the monthly payment amount, but they are collected every two weeks instead of twice every month. 

Strictly speaking, with the monthly option there are 12 payments, 24 with semi-monthly, and 26 with accelerated bi-weekly.  Monthly and semi-monthly payments are essentially the same. You pay less in interest costs and pay off the mortgage  faster with accelerated payments.