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.

The following is a typical monthly mortgage repayment plan.

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.

The Following table shows the various payment options. Notice that, with the exception of the accelerated example, the annual sum of payments and the total interest paid amounts are very close. The interest savings between non accelerated payment options is minimal.

	Monthly	Semi Monthly	Bi Weekly	Weekly	Accelerated Bi Wkly
Loan Amount	$111,796	$111,796	$111,796	$111,796	$111,796
Payment	$1,000	$498.98	$460.52	$230	$500
Annual Sum of Pmt	$12,000	$11,976	$11,974	$11,962	$13,000
# of Payments	12	24	26	52	26
Mortgage Free In	25 Years	25 Years	25 Years	25 Years	18.82 Years
Total Interest Paid	$188,204	$187,594	$187,548	$187,267	$132,964
Interest Savings		$610	$656	$937	$55,217

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 only 18.8 years.

The graph below illustrates the accelerated option. Compare this to the monthly payment plan illustrated above.