Bi Weekly (Accelerated and Not accelerated) and Weekly (Accelerated and Not accelerated) …
Other than the standard monthly and semi monthly payment options that have existed for years there are four other payment options that exist in regards to the frequency of your mortgage payments.
A third option in regards to payment frequency is the bi weekly payment option. When it comes to the bi weekly payment structure there are two options here as well; either accelerated or not accelerated. Accelerated bi weekly payments will save you a lot of money over the course of your mortgage (see the chart below to see a monetary example). In this case a borrower’s mortgage payments are exactly half of the monthly amount, but they are paid every two weeks. So for example, if the monthly payment is $1200, than payments are made every two weeks for $600. Due to the fact that payments are made every two weeks this will cause there to be at least twice a year the situation where one would make 3 payments in a month. For example, if your payments are made on Fridays, there will occasionally be months where it works out to have 3 Friday two week periods. When you look at January of 2009, the 2nd, 16th, and 30th are all Fridays that are 2 weeks apart in one month. Therefore, this is one of the cases where you would actually be making an extra $600 payment in the month. And over the year this would put another $1200 towards paying off your mortgage.
Another way to look at it is to think about how if you are simply making monthly payments you are going to be paying $1200 / month for 12 months, which = $14400 in payments towards your mortgage for the year. However, if you pay bi weekly payments then you are paying $600 X 26, which = $15600 for the year; an extra $1200 a year. Your interest is going to be the same, regardless of whether you are paying monthly or bi monthly payments. So by choosing the bi monthly payment option you are actually putting an extra $1200 a year towards amortizing your mortgage. In other words you will have an additional $1200 / year deducted from your balance owing on your mortgage and therefore getting you even closer to the end goal of paying it all off.
If you are paid every two weeks by your employer than this is a very easy mortgage payment plan to match up with because you would be getting paid at the same times your mortgage payments are due. However, if you are paid only monthly or semi monthly than bi weekly payments might put a little extra strain on your finances because of those extra payments that occur twice a year. So although your income won’t change your mortgage payment will be one and a half times the normal monthly amount. Rather than $1200 a month, you will occasionally be paying that $1800 a month. However, if you can keep up regardless of your pay check schedule you will end up saving a lot of money in the long run.
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