Why You Should Choose an Accelerated Bi-Weekly Payment

When it comes to paying off your mortgage, you need to to take advantage of all the strategies available to you. If you are diligent and stick to a plan you can potentially save thousands and even tens of thousands of dollars over the course of your mortgage amortization.

Since the shortest amortization you can get in Canada right now is 25 years, if you start implementing these strategies right away, you could be relatively young when you have your home paid off.

When it comes to your mortgage payments, you basically have three choices.

  1. Monthly payments – This just means that you pay a set amount every month, so you will have 12 payments a year. If your amortization is 25 years, it will take you 25 years to pay off your mortgage. The math is simple, for example if your monthly payment is $1295 per month you will make 12 payments a year for a total of $15,540
  2. Bi-weekly payments – This means that you make a payment every two weeks for a total of 26 payments with each payment being calcultated with this formula ($1295 x 12) / 26 for a total payment of $597.69 every two weeks. This also results in a total of $15540 being paid every year.
  3. Accelerated Bi-weekly payments – This means that you are still making your payment every two weeks but in this case you are paying a little bit more with each payment. The formula is $1295 / 2 which results in a payment of $647.50 every two weeks. The total paid over the course of the year is now $16,835. So of course if you are paying an extra $1295 dollars on your mortgage every year, you will pay off your mortgage a few years earlier and save a lot of money in interest charges.

As you can probably see it is usually not that difficult to come up with an extra $49.81 every two weeks. Most people will just get used to it and not even notice the increased payment. Accelerated Bi-weekly payments are the easiest way to shave a few years off of your mortgage while saving a lot of money. When you combine this strategy with making even one extra payment every year, you will be even further ahead.

There are plenty of youtube videos and websites that have a ton of other strategies that you can use to reduce the duration of your mortgage and how much you end up paying in interest. Just make sure you talk to your lender to see what their prepayment privilages are. Most big banks are pretty flexible in letting you make extra payments at least once a year and some allow it every month.