Different Types of Mortgage Payments Options
Congratulations, you’ve found your dream home and your trusted Mortgage Broker secured your mortgage. You have many mortgage payment options to pay off your mortgage faster. Faster repayment means less interest paid and sooner actual homeownership.
You don’t actually own your home until you repay your mortgage in full; it actually belongs to your mortgage lender. Don’t worry, there is good news. There are options.
What Is A Mortgage Payment?
Your mortgage payment is made up of two components; interest and principal. The principal portion reduces the amount owed to the lender. The interest portion goes to the lender for lending you the funds to purchase your home. Almost all lenders offer different options such as:
- Accelerated Bi-weekly
- Accelerated Weekly
Monthly Mortgage Payments
This tends to be a very popular choice with many borrowers. Your payments come out on the same day every month i.e. on the 1st of the month. You make 12 payments per year.
Bi-Weekly Mortgage Payments
Your payments are half of your monthly payment amount. The difference here is they are collected every second week. i.e. Every second Friday. Your monthly payment is multiplied by 12 and divided by 26. You make 26 payments per year.
Weekly Mortgage Payments
Your payments will fall on the same day of the week, every week. i.e. Payment is made every Thursday. Your monthly payment is multiplied by 12 and divided by 52 weeks. You will make 52 payments per year.
What are Accelerated Mortgage Payments?
Accelerated Bi-Weekly Mortgage Payments
An accelerated bi-weekly payment takes your monthly payments and divides it by two. This amount is taken from your bank account every second week (i.e. on every second Friday) You will still make 26 payments in a year. However, the payment amount is slightly more than a regular bi-weekly mortgage payment. This will allow you to repay your mortgage sooner.
Accelerated Weekly Mortgage Payments
An accelerated weekly payment takes your monthly payment and divides it by four. You will pay this amount on the same day of the week, every week. You still make 52 payments but at a slightly higher amount.
Difference Between Regular and Accelerated Payments
The major difference is how the payments are calculated. The accelerated method means you will approximately one extra payment every year. The extra payment equals faster repayment and less interest paid over the term of your mortgage. It will cost you a little bit extra every month but it will save you thousands in interest over the course of your mortgage.