When you set up your mortgage you have the option of choosing a mortgage payment frequency. You can choose monthly, semi monthly, bi-weekly, weekly, accelerated bi weekly and accelerated weekly. Accelerated bi weekly or accelerated weekly are more aggressive payment frequencies and can save you thousands of dollars in interest over the term and life of the mortgage. Let us look at an example
A $300,000.00 mortgage over a 5 year term, a 25 year amortization on a current fixed rate of 4.09% has a monthly (12 payments) payment of $1592.73. At the end of the 5 year term there will be a mortgage balance of $261,569.93. If the client chose a regular bi-weekly payment (26 payments)the balance at the end of the term would be the same. The client would pay $734.44 every two weeks which combined is $1,468.88 which is less than the monthly payment but because of the extra days in some months the overall annually mortgage payments are the same as the monthly mortgage payment. If the client however choose an accelerated bi-weekly payment (26 payments) they are chopping the monthly payment is half and paying every two weeks and because of the extra days in some months they get an extra’s one month’s payment in each year. An accelerated bi-weekly payment would be $796.37.
At the end of the 5 year term the remaining mortgage balance on the biweekly option would be $252,652.76. That is $8917.17 less than if you choose a regular monthly or bi weekly payment. Over a 25 year amortization one could save over $50,000.00 in interest and over three years of their mortgage. Accelerated bi weekly or weekly works out the same so there is no financial difference in choosing one over the other.