What are the different payment frequencies
available and how are the payments calculated for each?
Most lenders, offer the following payment
frequencies: Monthly, semi-monthly, bi-weekly, accelerated bi-weekly, weekly
and accelerated weekly.
Monthly –
You make your regular mortgage payments once per month, on a set day during the
month. You would make 12 equal payments per year.
Semi-monthly – You make your mortgage payments twice per month, typically on the 1st and 15th of the month. The amount of your payment is calculated by taking the equivalent of your monthly mortgage payment and dividing by two (number of monthly payments). You would make 24 payments per year.
Bi-weekly – You make your mortgage payments once every two weeks. The amount of your payment is calculated by taking the equivalent of your monthly mortgage payment and multiplying it by 12 months to get your annual mortgage payment. Then, you take this annual payment amount and divide it by 26 (52 weeks divided by two) to arrive at the amount of your bi-weekly payment. You would make 26 payments per year. In some months (twice per year), you would make three payments instead of two.
Accelerated bi-weekly – You make your mortgage payments once every two weeks. The amount of your payment is calculated by taking the equivalent of your monthly mortgage payment and dividing it by two (there are typically 2 two-week periods within a month). In some months (twice per year), you would make three payments instead of two. You would still make 26 payments per year but your payment amount would be higher than it would with a regular bi-weekly payment, thereby paying your principal down faster.
Weekly – You make your mortgage payments once every week. The amount of your payment is calculated by taking the equivalent of your monthly mortgage payment and multiplying it by 12 months to get your annual mortgage payment. Then, you take this annual payment amount and divide it by 52 weeks to arrive at the amount of your weekly payment. You would make 52 payments per year. In some months (four times per year), you would make five payments instead of four.
Accelerated weekly – You make your mortgage payments once every week. The amount of your payment is calculated by taking the equivalent of your monthly mortgage payment and dividing it by four (there are typically four weeks within a month). In some months (four times per year), you would make five payments instead of four. You would still make 52 payments per year but your payment amount would be higher than it would with a regular weekly payment, thereby paying your principal down faster.
Semi-monthly – You make your mortgage payments twice per month, typically on the 1st and 15th of the month. The amount of your payment is calculated by taking the equivalent of your monthly mortgage payment and dividing by two (number of monthly payments). You would make 24 payments per year.
Bi-weekly – You make your mortgage payments once every two weeks. The amount of your payment is calculated by taking the equivalent of your monthly mortgage payment and multiplying it by 12 months to get your annual mortgage payment. Then, you take this annual payment amount and divide it by 26 (52 weeks divided by two) to arrive at the amount of your bi-weekly payment. You would make 26 payments per year. In some months (twice per year), you would make three payments instead of two.
Accelerated bi-weekly – You make your mortgage payments once every two weeks. The amount of your payment is calculated by taking the equivalent of your monthly mortgage payment and dividing it by two (there are typically 2 two-week periods within a month). In some months (twice per year), you would make three payments instead of two. You would still make 26 payments per year but your payment amount would be higher than it would with a regular bi-weekly payment, thereby paying your principal down faster.
Weekly – You make your mortgage payments once every week. The amount of your payment is calculated by taking the equivalent of your monthly mortgage payment and multiplying it by 12 months to get your annual mortgage payment. Then, you take this annual payment amount and divide it by 52 weeks to arrive at the amount of your weekly payment. You would make 52 payments per year. In some months (four times per year), you would make five payments instead of four.
Accelerated weekly – You make your mortgage payments once every week. The amount of your payment is calculated by taking the equivalent of your monthly mortgage payment and dividing it by four (there are typically four weeks within a month). In some months (four times per year), you would make five payments instead of four. You would still make 52 payments per year but your payment amount would be higher than it would with a regular weekly payment, thereby paying your principal down faster.
As an example, let’s look at a $200,000 mortgage at
a fixed interest rate of 5% amortized over 25 years. The following chart
illustrates how each payment frequency would affect your amortization and total
interest cost.
Payment Frequency
|
Number Of Payments Per Year
|
Payment Amount
|
Amortization
|
Total Interest Cost
|
Total Interest Savings Vs. Monthly Payment
|
Monthly
|
12
|
$1,163.21
|
25
|
$148,963
|
$0.00
|
Semi-monthly
|
24
|
$581.01
|
25
|
$148,602
|
$361
|
Bi-weekly
|
26
|
$536.27
|
25
|
$148,571
|
$392
|
Weekly
|
52
|
$268.01
|
25
|
$148,409
|
$554
|
Accelerated bi-weekly
|
26
|
$581.60
|
21.5
|
$124,786
|
$24,177
|
Accelerated weekly
|
52
|
$290.80
|
21.5
|
$124,508
|
$24,455
|
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