What’s the difference between biweekly and accelerated biweekly? What about monthly payments? Which payment frequency gets you mortgage-free sooner? Banks have come up with some confusing payment frequency options. If you’ve been fed misinformation and you’re one of the few homeowners who gets to the end of their term, you might be left feeling rather disappointed. You should talk with your mortgage broker to understand the best payment schedule for shortening your amortization.

It can be confusing trying to understand which frequency saves you the most on interest while managing your cash flow. Here’s the basics.

• Bi-weekly payments will not shorten the life of your mortgage. When it comes to amortization, it will be the same thing as paying monthly.
• Add the word “accelerated” to biweekly, and your payments will save you thousands in interest and shave years off of your mortgage.

That’s the concepts, but to see what that means in real life, let’s look at the numbers!

The Math

For a $200,000 mortgage with a rate of 2.99% and an amortization of 25 years, here’s the comparison of monthly payments and biweekly payments.

The balance is higher by 96 cents because you effectively didn’t pay anything extra over the 60 months ( 5 years) to the lender. The sum of the annual payments is identical. If it seems unnecessary to compare monthly to biweekly, you’re right. There is no practical difference, which can be disappointing if you opted for the biweekly thinking you were paying off the mortgage more quickly and therefore, saving on interest.

Now let’s look at biweekly vs. accelerated biweekly, using the same scenario.

Here is where we see the difference of $5133.13.

When you work with a mortgage broker, they can make sure you understand these differences and help you make the best choice for your situation and your financial goals.

Remember, if you have any questions or concerns don’t hesitate to contact me.

Herjit Driver

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