The difference between accelerated and regular mortgage payments
Although it would be nice to just pay your mortgage whenever you feel like it, you’ll need to decide on a payment frequency. This means how often (not how much) you pay your lender, however, it can have an effect on how quickly you’re able to pay off your mortgage.
In Canada, the most common forms of payment frequency offered by lenders are monthly, bi-weekly, and accelerated bi-weekly. However, some lenders will offer a weekly or accelerated weekly option.
The Difference between Accelerated and Regular Payments
There’s a long-term advantage to the accelerated options, due to the difference in the way a bi-weekly and accelerated bi-weekly payment are calculated. Even though your number of payments per year remains the same, your accelerated bi-weekly amount would be slightly higher than your regular bi-weekly one. With an accelerated payment option, you end up making roughly one extra payment a year, allowing you to pay off your mortgage faster. Although an accelerated payment frequency might cost you more on a monthly basis, it will save you thousands in interest in the long run. By plugging some numbers into a mortgage payment calculator, you can see how the various payment frequency options might affect your monthly, and annual, payments.
Prepayment Options
In addition to these regular payment options, your mortgage will come with terms and conditions about prepayment: or how often you can make extra payments above and beyond your regularly scheduled ones.
Most lenders will allow you to make the occasional lump sum payment towards your mortgage, or increase your monthly payment amount, however there are rules around by how much you may increase a payment or how frequently. You can’t simply pay off your entire mortgage without hefty penalties from the bank.
If paying your mortgage off quickly is important to you, you might want to consider an accelerated payment frequency to help speed things along.
Source: theloop.ca
