Understanding Payment Frequency

You've most likely been told that there are 2 guarantees in life: death and taxes. When it comes to your mortgage, you will in fact pay back what you borrow, as well as interest. The part that has some wiggle room is how often you make your payments. We are going to go through the different types of payment plans and how they impact you and your mortgage.  

Here are the six repayment frequency types:

• Month-to-month payments - 12 repayments per year

• Semi-Monthly payments - 24 repayments each year

• Bi-weekly payments - 26 payments each year

• Weekly payments - 52 repayments each year

• Accelerated bi-weekly settlements - 26 payments annually

• Accelerated weekly payments - 52 payments annually

These options are straightforward and are made so you can easily match your payment frequency with your pay schedule with your employer. The accelerated payments speed up how fast you pay down your mortgage. When you choose either of these options it allows you to lower the cost of your overall borrowing.

Monthly payments formula: $1000/1 with 12 payments each year. A settlement of $1000 is made as soon as monthly for a total amount of $12,000 paid each year.

Semi-monthly formula: $1000/2 with 24 payments each year. A payment of $500 is paid twice per month for a total of $12,000 paid per year.

Bi-weekly formula: $1000 x 12/ 26 with 26 payments annually. A payment of $461.54 is made every second week for a total of $12,000 paid annually.

Accelerated bi-weekly formula: $1000/2 with 26 payments per year. A repayment of $500 is made every second week for a total amount of $13,000 paid per year.

You see, by making the accelerated bi-weekly payments, it's like you wind up making 2 additional payments each year. By making a greater repayment quantity, you reduce your home loan principal, which conserves rate of interest on the whole life of your home loan. The repayments for increased regular repayments work the same way. It's just that you would certainly be making 52 payments a year rather than 26.

By selecting an accelerated alternative for your payment frequency, you lower the general cost of borrowing by making small extra payments as part of your routine payment timetable. Currently, specifically how much you'll save over the life of your mortgage is hard to pin down. Calculations are difficult to do because of the many variables; home mortgages feature various amortization durations as well as terms with differing rates of interest along the road. Nevertheless, an increased bi-weekly payment routine could decrease your amortization by up to three years if maintained throughout the life of your mortgage.

If you would love to look at a few of the numbers as they connect to you and your mortgage, please don't hesitate to connect anytime; it would be our pleasure to speak with you.