Payment Frequency

One of the decisions you’re going to have to make when you get a mortgage is how often you want to make your payments. With constant demands on your cash flow, you’ll want a way of fitting your payments into your bill payment landscape. Lenders give you a choice of up to six payment frequencies for  fixed-rate mortgages so that you can choose when and how often you wish to make your regular payments.

1. Monthly (12 payments/year)
2. Semi-Monthly (24 payments/year)
3. Bi-weekly (26 payments/year)
4. Weekly (52 payments/year)
5. “Accelerated” bi-weekly (26 payments/year)
6. “Accelerated” weekly (52 payments/year).

The first four alternatives are ways to make payments fit conveniently with your cash flow. The accelerated alternatives allow you to make extra payments against your principal as part of your regular payment stream. Over the long haul this will not only save on interest but it’ll reduce the amortization of your mortgage.

You actually end up making one extra monthly payment against your mortgage each year by using an accelerated payment option. But you do so in such small amounts that the extra payment  easily fits into your cash flow.

With the accelerated bi-weekly frequency, instead of dividing the total annual payment amount by 26, it is divided by 24 (as if the payments were being made on a semi-monthly frequency). However, you still make 26 payments during the year. So, if your monthly mortgage payment is $1,000 and you use a bi-weekly frequency, your payments would be $461.54:

$1,000 x 12  / 26  =       $461.54 x 26        =       $12,000

However, if you choose the accelerated bi-weekly frequency, your payments would be $500 and you would make one extra monthly payment for a total of $13,000 a year:

$1,000 x 12 / 24   =       $500 x 26   =       $13,000

By making the accelerated bi-weekly payments, you actually make two extra payments a year (which translates into 13 monthly payments instead of 12). Those extra payments reduce your principal, so you save on your interest costs in the long term.

The accelerated weekly payments work in much the same way except that instead of dividing the total annual payment amount by 52, it is divided by 48 (as if the payments were being made on a monthly basis divided by four weeks). However, you still make 52 payments during the year.

Let’s say you had a mortgage of $200,000 at 6.5% amortized for 25 years. Here’s how the various payment frequencies would work for you:

Payment	Amount	Amortization	Interest Cost
Monthly	$1339.65	25 years	$201,893
Semi-monthly	669.82	25	201,359
Bi-weekly	669.82	23	201,319
Weekly	334.91	23	201,063
Accelerated biweekly	669.82	21	162,075
Accelerated weekly	334.91	21	161,615

How would you feel if someone offered to save you $40,000? I bet you'd feel just swell! And all you have to do is choose the faster-pay weekly frequency. It’s easy, it’s convenient and it saves money.

Many financial institutions allow you to change your payment frequency as your needs change. However, you should be aware that an interest adjustment charge from your current payment due date to the revised date may be required.

BTW: I had a dickens of a time finding a calculator that worked properly and gave me all the relevant information. Some didn’t calculate the interest properly for payment options other than monthly. Others didn’t even offer the accelerated payment options. Whazzup with that? The closest I came was the Vancity calculator. So if you want to work out your own numbers, save yourself some hunting around and head there first.