How to Save Money Changing Your Payment Frequency

There’s a misconception about mortgage payment frequency. A lot of people think that they’ll save big bucks by making their mortgage payments more often. While it’s true you could save some money; it’s barely anything. If you want to save the big bucks, you should change your mortgage payment frequency to accelerated bi-weekly or accelerated weekly.

In each of these examples, we’re going to assume a $500,000 mortgage amortized over 25 years at a rate of 1.99%.

Monthly

Monthly payment frequency is the default payment frequency option at most lenders. With a monthly payment frequency, you’ll make your regular mortgage payments 12 times a year. You can usually choose when the mortgage payment is withdrawn (i.e., the 1st of the month).

On a $500,000 mortgage amortized over 25 years at a rate of 1.99%, your monthly mortgage payments would be $2,114.84.

If you just made your regular mortgage payments, assuming your mortgage rate remained the same over those 25 years, you’d pay $134,453.24 in interest payments.

Monthly payment frequency makes the most sense when you’re only paid once a month from your workplace. Otherwise, if you want to save money, it’s worthwhile to check out other payment frequencies.

Semi-Monthly

A less common mortgage payment frequency offered by lenders is semi-monthly. Semi-monthly means that you make 24 regular mortgage payments a year, usually on the 15th and last day of the month.

Using the same mortgage numbers above, your semi-monthly mortgage payments would be $1,057.09.

If you just made your regular semi-monthly payments, you’d pay $134,190 in interest payments. This saves you $263 more in interest than if you had selected a monthly payment frequency.

You won’t save much by switching from monthly to semi-monthly. However, most people are paid semi-monthly at work, it might be easiest from a cash flow standpoint.

Bi- Weekly

More common than semi-monthly is bi-weekly. Bi-weekly means that you make your regular mortgage payments every two weeks total of 26 per year. You can usually choose the day of the week your mortgage payment is withdrawn (i.e., every second Wednesday).

Using the same mortgage numbers above, your bi-weekly mortgage payments would be $975.75.

If you just made your regular bi-weekly payments, you’d pay $134,171 in interest payments. This saves you $282 more in interest than if you had selected a monthly payment frequency.

This is only slightly more in interest savings than semi-monthly. And over 25 years, it’s a drop in the bucket.

Weekly

Weekly is pretty self-explanatory. It means that you make your regular mortgage payments once a week. You can usually choose the day of the week your mortgage payment is withdrawn (i.e., every Friday).

Using the same mortgage numbers above, your weekly mortgage payments would be $487.80.

If you just made your regular weekly payments, you’d pay $134,051 in interest payments. This saves you $402 more in interest than if you had selected a monthly payment frequency.

Again, it’s barely anything compared to monthly.

Acc. Bi Weekly & Acc. Weekly

If you want to save the big bucks, you’ll want to go with accelerated bi-weekly or accelerated weekly. We’ve already covered accelerating your mortgage payments in another blog post, so we’ll only touch on them this time.

When you accelerate your mortgage payments, you’re making a slightly higher mortgage payment. It’s that slightly higher payment that helps you pay down your mortgage a lot sooner.

Using the same mortgage numbers above, your accelerated bi-weekly mortgage payments would be $1,057.42.

By switching to accelerate weekly, you’d pay $120,195 in interest payments. This saves you $14,258 more in interest than if you had selected a monthly payment frequency.

Using the same mortgage numbers above, your accelerated weekly mortgage payments would be $528.71.

If you just made your accelerated weekly payments, you’d pay $120,047 in interest payments. This saves you $14,407 more in interest than if you had selected a monthly payment frequency.

For most people, accelerated bi-weekly is the best choice. Paying your mortgage payments weekly can be tough from a cash flow perspective. Accelerated bi-weekly is relatively painless since most Canadians are paid twice a month at work.

The Bottom Line

Are you trying to figure out what payment frequency would work better for you? Get in touch with one of our mortgage payments. We’d be happy to help you.

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