When Canadian’s aim to settle their mortgage debt, they encounter various payment options to effectively handle their repayment timeline. Understanding the distinctions between these payment options i.e. Accelerated bi-weekly vs bi-weekly mortgage payments, aids borrowers in making well-informed decisions that suit their financial objectives.
Let’s have a quick look at the different payment options available-
- Monthly Payments: Is the amount of money due on a loan or mortgage every month.
- Semi-Monthly Payments: Here the payment is made twice a month, usually on the 15th and last of the month.
- Accelerated Bi-Monthly Payments: Under it half of the monthly payment is made every two weeks, resulting in 26 half payments in a year.
- Semi-Monthly Payments: A borrower make payments twice a month but not necessarily on specific dates like 15th and last day of the month.
- Accelerated Bi-Weekly Payments: It involves making payment every two weeks, but with slightly higher rates.
- Bi-Weekly Mortgage: Borrower makes payments every two week
When it comes to managing a mortgage, borrowers often seek ways to pay off their loans faster and save on interest payments. Two popular methods for achieving this goal are Accelerated Bi-Weekly Payments and Bi-Weekly Mortgage.
What is Bi-Weekly Mortgage Payment
A bi-weekly mortgage payment plan involves making half of the monthly mortgage payment every two weeks. This results in 26 half-payments, which is equivalent to 13 full payments in a year.
By making these extra payments, borrowers can reduce the principal amount owed on their mortgage more quickly, thereby shortening the loan term and saving on interest payments over time.
The primary advantage of bi-weekly mortgage payments is the accelerated repayment schedule, which can help borrowers pay off their loans years ahead of schedule.
Additionally, because payments are made more frequently, borrowers may experience a positive impact on their credit score due to lower outstanding debt balances.
However, one drawback of traditional bi-weekly mortgage payments is that they require discipline and consistency from borrowers. Missing a payment can disrupt the schedule and negate the benefits of the accelerated repayment plan.
What is Accelerated Bi-Weekly Mortgage Payment
Accelerated bi-weekly mortgage payments operate similarly to traditional bi-weekly payments, with one crucial difference: instead of making half of the monthly payment every two weeks, borrowers make a slightly higher payment equivalent to one full extra payment per year.
This additional payment goes directly toward reducing the principal balance of the mortgage. The key advantage of accelerated bi-weekly payments is the potential for even greater interest savings compared to traditional bi-weekly payments.
By making an extra payment each year, borrowers can pay down their principal balance faster, resulting in less interest accruing over the life of the loan.
Furthermore, accelerated bi-weekly payments offer the same benefits of improved credit scores and earlier loan payoff as traditional bi-weekly payments. However, they require slightly higher payments, which may not be feasible for all borrowers.
Accelerated Bi-Weekly vs Bi-Weekly Mortgage Payments
| Features | Accelerated Bi-Weekly Payment | Bi-Weekly Payment |
| Payment Frequency | Every two weeks | Every two weeks |
| Number of Payments | 26 half-payments per year | 26 half payments per year |
| Total Payment Per Year | Equivalent to 13 full payments | Equivalent to 13 full payments |
| Additional Payments | One extra payment per year | None |
| Impact on Principal | Faster reduction due to extra payments | Slower reduction compared to accelerated bi-weekly |
| Total Interest Paid | Typically lower due to faster principal reductions` | Higher compared to accelerated bi-weekly |
| Payoff TIme | Generally shorter | Longer than accelerated bi-weekly |
Dates Of Accelerated Bi-Weekly Payments
Accelerated bi-weekly mortgage payments are made every two weeks, so the dates will depend on when you start making payments. Typically, you would start on the date your mortgage begins, and then every two weeks thereafter.
Let’s understand with an example-
- Monthly mortgage payments is $1,200
- Divide the monthly payments by two and make that payment every two weeks.
- $1,200/2= $600
- Result is 24 half payments per year instead of 12 full payments
Dates Of Bi-Weekly Payments
The Monthly Mortgages are made one time a month and semi- monthly payments are made 2x a month, whereas bi-weekly payments are made every 2 weeks.
Let’s understand with an example
- Monthly payments: $1,200
- Bi-weekly Payment: $divide monthly payment in half: $1,200/2= $600
- Equivalent Extra Payment: with 26 Bi-Weekly payment in a year (52 weeks/ 2), you would effectively make 13 full monthly payments ($600*26= $15,600) which is equal to one extra monthly payment compared to 12 traditional payments.
Choosing the Right Option
When deciding between accelerated bi-weekly vs bi-weekly mortgage payments, borrowers should consider their financial situation, budgetary constraints, and long-term goals.
Accelerated bi-weekly payments offer the potential for greater interest savings, they may not be suitable for everyone, particularly those with tight budgets.
On the other hand, traditional bi-weekly payments provide a structured approach to debt repayment without the requirement of higher monthly payments. Ultimately, the best option depends on individual circumstances and priorities.
Accelerated Bi-Weekly vs Bi-Weekly Mortgage Payments Differences
Accelerated Bi-weekly Payments:
- Payments made every two weeks, totaling 26 half-payments per year.
- Equivalent to making 13 full payments annually.
- Includes one extra payment per year, accelerating principal reduction.
- Faster reduction of principal leads to potential savings on total interest paid.
- Shorter payoff time compared to bi-weekly payments.
- Slightly higher required budget due to the extra payment.
Bi-weekly Payments:
- Payments made every two weeks, totaling 26 half-payments per year.
- Equivalent to making 13 full payments annually.
- No additional payments beyond the regular schedule.
- Slower reduction of principal compared to accelerated bi-weekly payments.
- May result in higher total interest paid over the life of the loan.
- Longer payoff time compared to accelerated bi-weekly payments.
- Slightly lower required budget compared to accelerated bi-weekly payments.
Conclusion
Accelerated bi-weekly vs bi-weekly mortgage payments are both effective strategies for paying off a mortgage faster and reducing interest expenses. While accelerated bi-weekly payments offer the potential for greater savings, traditional bi-weekly payments provide a simpler and more manageable approach for some borrowers.
Regardless of the option chosen, committing to a consistent payment schedule and maintaining financial discipline are key factors in achieving mortgage payoff goals. By understanding the differences between these payment methods and evaluating personal preferences, borrowers can make informed decisions that align with their financial objectives.
You can also go through other comparison blogs of DwellingIQ such as Mortgage Term vs Mortgage Amortization for further insight in the Canadian mortgage market.