Payment Frequencies & Accelerated Payments
How accelerated bi-weekly and weekly payments can save you thousands in interest
One of the most effective ways to save money on your Canadian mortgage is to change your payment frequency. By switching from monthly to accelerated bi-weekly or weekly payments, you can save tens of thousands of dollars in interest and pay off your mortgage years earlier.
Quick Impact
On a $400,000 mortgage at 5% APR, switching to accelerated bi-weekly payments can save over $65,000 in interest and shorten your amortization by approximately 4 years.
Understanding Payment Frequencies
Canadian lenders offer six main payment frequency options, each with different implications for your total interest costs:
Regular Payment Frequencies
Monthly (M)
12 payments per year
Semi-Monthly (SM)
24 payments per year (twice monthly)
Bi-Weekly (BW)
26 payments per year (every two weeks)
Weekly (W)
52 payments per year
Accelerated Bi-Weekly (ABW)
26 payments per year at higher amounts
Accelerated Weekly (AW)
52 payments per year at higher amounts
How Accelerated Payments Work
The key difference between regular and accelerated payments lies in how the payment amounts are calculated:
Payment Calculation Methods:
Regular Frequencies:
Take the annual payment amount and divide by the number of payment periods.
Accelerated Frequencies:
Take the monthly payment amount and divide by 2 (bi-weekly) or 4 (weekly).
Example Calculation
Let's see how this works with a $400,000 mortgage at 5% APR over 25 years:
| Frequency | Payment Amount | Annual Total | Extra Annual |
|---|---|---|---|
| Monthly | $2,324 | $27,888 | - |
| Bi-Weekly | $1,073 | $27,898 | $10 |
| Accelerated Bi-Weekly | $1,162 | $30,212 | $2,324 |
| Accelerated Weekly | $581 | $30,212 | $2,324 |
Notice how accelerated payments result in one extra monthly payment per year ($2,324).
The Math Behind the Savings
The savings from accelerated payments come from two factors:
- More frequent principal reduction: Making payments more often means principal is reduced more frequently
- One extra payment per year: Accelerated schedules effectively add 13th monthly payment annually
Savings Breakdown ($400K mortgage, 5% APR, 25 years)
Choosing the Right Frequency
While accelerated payments offer significant savings, the best choice depends on your personal financial situation:
Accelerated Payments Are Ideal If:
- You get paid bi-weekly or weekly
- You want to pay off your mortgage faster
- You prefer automated savings
- You have stable income
- You don't need the cash flow flexibility
Monthly Payments Might Be Better If:
- You have irregular income
- You want maximum cash flow flexibility
- You can invest the difference at higher returns
- You have high-interest debt to pay off first
- You're budgeting tightly
Switching Payment Frequencies
Most lenders allow you to change your payment frequency at any time, often with just a phone call or online request. However:
- Some lenders may charge a small administrative fee
- Changes typically take effect on your next payment date
- You may need to update your automatic payment arrangements
- Consider the timing - switching mid-year might affect your annual payment amounts
Advanced Strategies
Hybrid Approach
Some borrowers choose to make monthly payments but manually make an extra payment annually. This provides flexibility while still capturing most of the interest savings.
Prepayment Privileges
Many mortgages allow annual lump sum payments (typically 10-20% of the original balance). Combining accelerated payments with annual prepayments can maximize your savings.
Rate vs. Payment Strategy
Sometimes it's more beneficial to negotiate a lower interest rate rather than using accelerated payments. Always compare the total interest saved with each approach.
Real-World Considerations
Important Factors to Consider
- Opportunity Cost: Could you earn more than your mortgage rate by investing the extra payments?
- Liquidity: Money paid toward your mortgage is not easily accessible
- Other Debt: Pay off higher-interest debt (credit cards, loans) before accelerating mortgage payments
- Emergency Fund: Ensure you have 3-6 months of expenses saved before aggressive mortgage payments
- Life Changes: Consider how job changes, family growth, or other major expenses might affect your budget
Frequently Asked Questions
Q: Can I change my payment frequency anytime?
A: Most lenders allow frequency changes at any time, though some may charge a small fee. Check with your lender about their specific policies and any associated costs.
Q: What happens if I miss an accelerated payment?
A: Missing accelerated payments is treated the same as missing any mortgage payment - it can affect your credit and may result in penalties. If you're having trouble, contact your lender immediately to discuss options.
Q: Do accelerated payments help with mortgage qualification?
A: Lenders typically qualify you based on your monthly payment obligation, but accelerated payments can help you build equity faster, which may be beneficial for future refinancing or home equity loans.
Q: Should I choose accelerated payments or increase my down payment?
A: A larger down payment reduces your principal immediately and may help you avoid CMHC insurance. Accelerated payments provide ongoing benefits. Often, maximizing your down payment first (to avoid CMHC if possible) then using accelerated payments is the optimal strategy.
Compare Payment Frequencies
Use our calculator to see how different payment frequencies affect your mortgage costs and timeline.
Calculate SavingsRelated Guides
Last updated: January 15, 2025
Disclaimer: Savings estimates are approximate and depend on your specific mortgage terms. Not all lenders offer all payment frequencies. Consult your lender for available options.