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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