When applying for a mortgage, there are a few options you have in terms of contract length and payment frequency. Most homebuyers are always on the hunt for the combination that will give them the best overall deal, or the one that will lead to them paying the least amount of interest. Because there are a few different payment frequencies available, it may be unsure which one to pick. Take a look below at the six main types of payment frequency and how they may affect your overall bottom line:
- Monthly (12 payments/year)
- Semi-Monthly (24 payments/year)
- Bi-weekly (26 payments/year)
- Weekly (52 payments/year)
- Accelerated bi-weekly (26 payments/year)
- Accelerated weekly (52 payments/year)
If you choose one of the first four payments, they are made to match your payday frequency so it would be smart to arrange the payments for a few days after you receive your paycheque. This will run the full length of your amortization.
But if you take a look at the last two options, you can accelerate how fast you pay off your mortgage. For the accelerated bi-weekly, this is done by taking the annual amount and dividing by 24, but actually make 26 payments at the higher amount. This adds up to around two extra payments per year, which helps reduce your interest. The same thing happens for the accelerated weekly payments, except you would make 52 payments instead of 26. It is tough to calculate exactly how much interest you can save with this method as the mortgage is broken up into multiple terms that each have different rates, but you can be assured that there will be significant savings. At today’s rates, your amortization period could be reduced up to 3.5 years!
Choosing the right payment frequency for you all depends on your lifestyle, income, and personal factors. Of course everyone would like to pay off their mortgage as fast as possible, but can only do what works for their personal situation. If you need help figuring out which method is best for you, contact me today.