Mortgage Payment Options
You will need to be consistent in making payments when you acquire a home and get a mortgage. The actual amount paid and how often you make installments is a function of the payment frequency option you select.
What are the payment frequency options available to you?
Canadians have five different mortgage frequency options to choose from:
- Accelerated Weekly
- Accelerated Bi-weekly
Weekly Mortgage Payments
For weekly mortgage payments, your provider multiplies your monthly installment by 12 and then divides it by the 52 weeks of the year. You, therefore, make 52 payments each year when you opt for a weekly mortgage arrangement.
Accelerated Weekly Mortgage Payments
To calculate accelerated weekly mortgage payments, your provider divides your monthly installment by four and then collects that amount from you each week. You will make 52 payments each year with an accelerated weekly mortgage payment, but the amount paid is somewhat higher than that of an ordinary weekly mortgage payment.
Your provider calculates a bi-weekly mortgage payment by multiplying your monthly installments by 12 and dividing the product by the 26 pay periods of the year. You make 26 payments every year with the bi-weekly mortgage frequency option.
Accelerated Bi-Weekly Payments
With accelerated bi-weekly mortgage payments, your provider divides your monthly mortgage installment by two and collects that amount from you every two weeks. The total per year is still 26 payments but the amount is somewhat higher than an ordinary bi-weekly mortgage agreement.
What is a monthly mortgage payment?
Monthly mortgage payments are withdrawn from your bank account on the same day of each month (for example on the 1st of every month). You make 12 payments per year when you opt for a monthly mortgage payment.
How do regular payments differ from accelerated payments?
The single big difference between accelerated and regular payments lies in the method of calculation. You will make around one additional payment per year when you take the option of accelerated payments. This helps you pay down your mortgage sooner and saves you thousands of dollars in interest, but it will cost you a bit more every month.
In 2017, a new Canadian mortgage law specified that every Canadian who was applying for an unsecured mortgage at a federally regulated financial institution had to pass a mortgage stress test. Even a hefty down payment was not a sufficient reason for waiving the test....