Your
Payment Options
Canadian
Mortgage Payment Plans-
Monthly - Bi Weekly - Weekly -
Accelerated
Monthly Mortgage Payment
A typical monthly mortgage consists of equal
monthly payments of both principal and interest.
As payments are made the principal owing is
reduced, each subsequent interest payment
is also lower as a result. Over time more
and more of the equal payment is applied to
principal reduction, until the mortgage is
completely repaid. A mortgage is usually calculated
to be paid off over 25 years, however any
repayment period (amortization) is possible.
The amount of interest paid is a result of
the interest rate, the compounding frequency
and length of time it takes to repay the loan
in full.
Mortgages
have traditionally been paid on a monthly
basis, same as rent. In recent years financial
institutions have offered flexible payment
options. These include the availability of
Weekly, Semi Monthly, and Bi Weekly payment
plans in addition to the conventional Monthly
option.
There
are no great savings in the amount of interest
paid between the various payment plans, except
for the accelerated options. When choosing
a payment plan you should consider convenience
and practicality. If your salary is paid on
a monthly basis, a monthly payment is probably
the way to go. If you are paid semi monthly
or every second friday, the Semi Monthly or
Bi Weekly options may be best.
Accelerated
Payment Plans. An Accelerated Payment
Plan is a great way to save thousands of dollars
of interest and be mortgage free years earlier.
The savings are a result of the additional
principal amounts paid each month. Any payment
plan can be accelerated, simply by pre-paying
an amount each month or decreasing your amortization.
The most common accelerated plan is the Bi
Weekly payment option due to the easy payment
increase.
Accelerated
Bi Weekly Payments. The above chart shows
that the "Monthly" option requires
a monthly payment of exactly $1,000. The annual
sum of these payments is $12,000, calculated
as twelve multiplied by $1,000. When choosing
an Accelerated Bi Weekly payment plan the
borrower agrees to pay one half (1/2) of the
monthly payment 26 times per year. With the
accelerated Bi Weekly plan the borrower will
be paying the equivalent of one extra monthly
payment, $1,000, each year. The result is
faster repayment of the mortgage, "accelerated",
and the consequent interest savings.
Here
is why. There are 26 Bi Weekly payment
periods in a year. The borrower agrees to
pay $500, half the monthly payment, 26 times
per year. As such their annual sum of payments
is $13,000 (26 payments x $500 = $13,000).
This is $1,000 more than the annual sum of
monthly payments. This additional payment
of principal is the reason for the spectacular
savings in interest of $55,217 and the luxury
of being mortgage free in
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