Lenders give you a choice of up to six payment frequencies so that you can choose when and how often you wish to make your regular payments. The four non-accelerated alternatives (Monthly, Semi-Monthly, Bi-Weekly, Weekly) are ways to make payments fit conveniently with your cash flow.

 

The accelerated alternatives allow you to make extra payments against your principal as part of your regular payment stream. Over the long haul this will not only save on interest but it’ll reduce the amortization of your mortgage.

 

You actually end up making one extra monthly payment against your mortgage each year by using an accelerated payment option.

 

Monthly Payments:

The most common way of paying a mortgage is with monthly payments typically on the 1st of every month. This is easy to remember if you are used to paying rent.

 

Semi-Monthly Payments:

Semi-monthly payments are also pretty straight forward. They're taken twice a month, usually on the 1st and the 15th and each payment is one half of the monthly amount. Therefore, whether you pay $1,000 in monthly payments or $500 in semi-monthly payments, you're still paying $12,000 per year. As a result, this option saves you very little money because you are paying the same annual amount just a small fraction more frequently.

 

Bi-Weekly Payments:

Again, we're not looking at much of a money savings here. Bi-weekly payments are determined by multiplying the monthly payment by 12 and then dividing by 26. So in our $1,000/month example, the biweekly payment ends up being $461.54 - totalling $12,000 per year. A very small amount of savings are gained due to half of your payment being made early each month. The main reason for choosing this option would be the convenience of matching your payment to your pay days, with lower payments than the accelerated version.

 

Bi-Weekly Accelerated:

Payments are exactly half of a monthly payment amount and collected every two weeks - meaning exactly every 14 days. For example, if the monthly payment is $1,000 then the bi-weekly payment will be $500. This saves you money because you pay an extra $1,000 over a twelve month period.
You will also make an extra small deduction from the mortgage balance because you're making small payments faster than if they were larger, monthly payments.

 

Weekly Payments:

Regular weekly payments don't make much of a difference in terms of cost savings. The $1,000 monthly payment is multiplied by 12, and then divided by 52. This equals a weekly payment of $230.77 and no surprise at the end of the year you will have ended up paying $12,000. Again, using our example, this is exactly the same amount as monthly.
A very small amount of savings are gained due to three quarters of your payment being made early each month. The main reason for choosing this option would be the convenience of matching your payment to your pay days, with lower payments than the accelerated version.

 

Weekly Accelerated:

Similar to bi-weekly accelerated payments, weekly accelerated payments allow you to pay off your mortgage faster by sneaking in a few extra payments. They are one quarter of your normal monthly payment, but they're made exactly every seven days so you end up making four extra payments per year. In our example, that results in an extra $1,000.