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Saving Money on Your Mortgage with Bi-Weekly Payments

When you become a home owner, the costs begin to add up quickly. In addition to your mortgage, you’re paying school taxes, electricity and heating, and in some cases, condo fees; so, evidently, the lesser your payments are, the better.

But where can you save on costs? Many people aren’t aware of this, but making bi-weekly payments instead of monthly will actually save you thousands of dollars on your mortgage. The bi-weekly payment option has become increasingly popular over the years because it not only save saves you money, but it also sheds several years off your amortization period. You can own your home years before you were scheduled to. Because of this new standard, most Canadian institutions offer these payment options.

How does it work?

It’s all in the calculations. There are 52 weeks in a year, therefore submitting a payment every two weeks amounts to 13 full payments (or 26 half ones). Because the balance on which the interest is charged is decreasing more often, the lender will charge less interest on a lower balance.

Note the example below comparing the different payment frequencies on a $200,000 mortgage with a 2.5% interest rate and an amortization period of 25 years:

  • Monthly Payment Amount: $897.23
  • Bi-Weekly Payment Amount: $448.62
  • Interest with Monthly Payments: $69,170.04
  • Interest with Bi-Weekly Payments: $61,299.68
  • Bi-Weekly Mortgage Interest Savings: $7,870.36

To break it down: In this case, an extra $34.51 is added every two weeks, shedding a totally of 31 months off the amortization period and saving almost $8,000 on loan interest. Not too shabby.

While this does seem like the better option, there are other factors to take into consideration. Will bi-weekly payments suit your lifestyle and financial obligations? It’s also important to note that the contract with your lender forces you to make those payments, no matter what the circumstances.

To evaluate what payment plan is right for you, contact us today for advice from our professionals!