Schedule of Payments and Payment Frequencies

First-time Home Buyer Knowledge Base

Your mortgage will require you to repay your loan on a regular schedule. This may be monthly, bi-weekly or even weekly. The advantage of a more frequent payment is a reduction in the amount of interest you pay. This can add up to tens of thousands of dollars in savings.

Choosing the Right Schedule of Payments

“How often should I schedule the payments on my mortgage?” It’s a common question, and one worth careful consideration. While more frequent payments can result in significant savings in your total interest payout, there are other factors to consider as well.

The first step is to look at your cash flow. Do you receive your income once a month, semi-monthly, every two weeks or weekly? Your answer to this question will determine which payment frequency is the best for you.

Payment Frequency Options for Canadian Borrowers

Canadian lenders are more progressive than their counterparts in the U.S. in the number of payment options they are willing to offer borrowers. This is a good thing, as it gives you the power to reduce the amount of interest in exciting ways.

Weekly Regular Payments

This option is great for someone who has an employer who pays weekly, a more common practice in Canada than in the U.S. You add up the amount of 12 monthly mortgage payments and divide it by 52. This is the amount you pay every week. Four times a year you’ll be paying a fifth mortgage payment. This adds up to the equivalent of 13-1/4 monthly payments per year. The savings in interest aren’t that great, though the convenience of not having to save a lump sum each month for a large mortgage payment is very convenient. This method will knock just over 2 years off your mortgage.

Accelerated Weekly Payments

If you divide your regular monthly mortgage payment by four, you get a slightly higher figure than when you divide a year’s total payments by 52. This means you are actually paying a little more of the principle down than you would under the weekly payment plan. Pay this slightly higher payment on the same day every week of the year, and you will reduce the length of time you are paying on your loan by 3-1/2 years and save 14 times more interest than if you use the regular weekly payment plan.

Regular Bi-Weekly Payments

With a regular bi-weekly payment schedule, you add up the amount of 12 monthly mortgage payments and divide it by 26. You pay this amount on your mortgage once every two weeks. Twice a year you pay an extra payment. This translates into one extra month paid every year. While the interest savings aren’t that great, it does knock almost 2 years off a 25 year amortization. Rather it’s a convenient way to coordinate your mortgage payments if you are paid bi-weekly.

Accelerated Bi-Weekly Payments

If you divide your regular monthly mortgage payment by four, you get a slightly higher figure than when you divide a year’s total payments by 26. This means you are actually paying a little more of the principle down than you do making a regular bi-weekly payment. Pay this slightly higher payment on the same day every other week. While the savings won’t be quite as great as if you use the accelerate weekly payment plan, the results are quite similar. It cuts 3-1/2 years off your mortgage and still saves about 14 times more interest than paying on a bi-weekly basis.

Semi –Monthly Payments

Some employers prefer to pay employees twice a month. Having a payment plan that allows you to pay twice a month makes it a lot easier to manage your personal cash flow. There is little interest savings connected with this option. It’s primarily important for cash flow purposes.

Monthly Payments

This is the traditional payment structure most lenders have used in the past. The date of payment is usually set for the 1st of the month, though you may request a different date that better fits your cash flow.

Comparison at a Glance:

Please note: This example is given only to show the savings you experience when you accelerate your payment on the principle balance of your loan. The data is only representational, not actual.

Primary Considerations

Interest savings, as great as they are, are the last thing to consider when choosing your payment plan. The most important consideration in choosing a payment plan for your mortgage is cash flow. If you are paid twice a month, yet opt for a bi-weekly payment schedule, you may find yourself strapped for the extra payment that comes due twice a year. Match your payment schedule to your income flow. It will be much easier to stay on top of things that way.