Will you pay off your mortgage quicker if you have a biweekly payment?
I did a poll on my social media recently to see who thought “a biweekly payment always meant you’re paying off your mortgage quicker”. Result: it was a split down the middle!
The truth is a biweekly payment does not necessarily mean your mortgage will be paid quicker. A biweekly payment comes in two flavors:
Un-accelerated is a regular, plain-Jane biweekly payment. It’s the yearly payments divided by 26. If your amortization (the amount of years to pay off your mortgage) was 25, it will take you 25 years to pay your mortgage.
To pay off your mortgage quicker, a bi-weekly ACCELERATED payment is where the magic is! By choosing this option, you actually are paying a little more AND knocking off a few years off your mortgage!
Let’s look at some numbers. Let’s say a client has a mortgage of $500,000…
Take a look at the bi-weekly accelerated payment… it’s almost $100 more than the regular biweekly payment! Did you notice the biweekly accelerated payment is identical to the semi-monthly payment? That’s because the biweekly accelerated payment is exactly half the monthly payment, but charged every two weeks. Therefore, you are in fact paying a little more towards your mortgage, which in turn, cuts your amortization down.
An accelerated payment will shortened your mortgage by +/- 10% (shortens your mortgage by a little over 2 years on a 25 year amortization).
Here’s was I noticed…
I’m a mortgage agent and I work on a team. I probably see 8-12 mortgage statements per week. If I was to guess, 60% (of our clientele, anyway) have NON-accelerated biweekly payment.
I believe most people think they’re paying off their mortgage quicker when in fact, they’re not.
Is my biweekly payment accelerated?
2 ways you can find out:
“Can you confirm if my biweekly payment is accelerated or not?”.
I hope that was helpful!
Mortgage questions? Email me at natalie@yourhomemortgage.ca.
All the best,
Natalie