Accelerated Bi-Weekly vs. Bi-Weekly: Which is Better?

An accelerated bi-weekly payment frequency can save you thousands in interest and cut years off your mortgage compared to a bi-weekly payment option. In the 2021 Mortgage Consumer Survey, 41% of respondents had a monthly mortgage payment, with the second most popular mortgage payment being bi-weekly. In my experience, mortgage payment selection is often based on convenience rather than the best option to save on interest costs and pay off the mortgage sooner.

What type of Mortgage Payment Options are Available in Canada?

In Canada, there are six types of mortgage payment options available. A borrower can have a monthly, semi-monthly, bi-weekly, weekly, accelerated bi-weekly, or accelerated weekly mortgage payment.

Monthly: A monthly payment frequency will require you to make 12 payments per year. It’s one of the most common payment options selected by borrowers.

Semi-Monthly: This payment option will require you to make two payments per month for a total of 24 payments per year. However, the total principal and interest paid at the end of the year will be the same as if you were on a monthly payment frequency.

Weekly: This payment frequency will require you to make 52 total payments in a year. To get the payment amount required, simply take the monthly equivalent payment, multiply it by 12, and then divide it by 52.  The total principal and interest paid in a year will be the same as if you were on a monthly frequency.

Bi-Weekly: Selecting this payment option will result in you making 26 total payments per year.  To calculate the payment required, take the monthly payment and multiply it by 12, then divide it by 26. The total amount you make in a year will be the same as if you were on a monthly frequency. It’s a popular payment option as it lines up with most people’s pay frequency.

Accelerated Bi-Weekly: This payment option will require you to make 26 total payments in a year similar to bi-weekly. However, the total amount paid in a year is higher than the bi-weekly due to the calculation, which is explained in detail below.

Accelerated Weekly: This payment option will require you to make 52 payments per year. The amount paid is determined by taking the monthly mortgage payment and dividing that by 4. This results in a slightly higher weekly payment compared to just having the non-accelerated weekly option.

Mortgage Payment Type and the Number of Payments Made Per Year

What Type of Mortgage Loans are Available in Canada?

To understand which mortgage frequency is best for reducing your mortgage debt, it’s best to understand a little about how the lender sets up the mortgage loans. There are essentially four types of mortgage loan setup a lender can implement when it comes to providing a loan.

Interest Accruing Mortgage Loan:

• In this type of loan, the borrower will not make any interest or principal payment during the term of the loan. The borrower is given the initial loan amount they request and the interest will grow over the life of the loan, then at the end of the term, the borrower will need to pay back the initial principle along with all the interest due. Not a great option for the lender as during the term of the loan they receive no interest or principal repayment.

Interest Only Mortgage Loans:

• This type of mortgage loan will see the person making payments that at least cover the interest cost during the term of the loan. At the end of the term, the borrower is expected to pay back the principal as well as any outstanding balance owed. This type of setup is common for most equity line of credit products offered by most lenders.

Straight Line Principal Reduction Mortgage Loan

• With this payment option, the borrower makes principal and interest payments throughout the loan process. However, this structure will see that the borrower is making a large amount of loan balance due early on the loan. As such, it’s not an option used as the amount of payment required to be made with this option wouldn’t work for most people’s income. The payment would be too large.

Constant Repayment Mortgage Loan:

• This is how most mortgage loans are structured. The borrower makes payments that cover both the principal and interest payments required. This result in the lender having the entire loan paid in full by the end of its term. This mortgage structure can have the loan be fully amortized or partially amortized. Most loans in Canada are partially amortized, which means that the rate you get is only guaranteed for the term of your mortgage but the payment is based on the loan’s amortization year. This type of mortgage loan setup means, frequent and additional payments will result in interest savings and the loan being paid off sooner.

How is Accelerated Bi-Weekly Payment Calculated?

Accelerated bi-weekly payment is calculated differently than bi-weekly. To calculate the accelerated bi-weekly payment, you divide the monthly mortgage payment by two and then make 26 payments throughout the year (monthly mortgage payment/2). Bi-weekly payment is calculated by multiplying the monthly payment by 12 and then dividing that by 26 to get the bi-weekly payment (Monthly payment*12/26).

What is the difference between accelerated bi-weekly payment and bi-weekly payment?

Due to how accelerated bi-weekly payment is calculated, you make an extra monthly mortgage payment within the year with an accelerated bi-weekly payment. The additional payment helps reduce the interest payable and reduce your mortgage amortization. A bi-weekly payment doesn’t make any more payments than a monthly payment; instead, the total yearly amount due is paid on a bi-weekly frequency.

Is accelerated bi-weekly better than bi-weekly?

An accelerated bi-weekly payment is a better mortgage payment option than bi-weekly because you make an extra mortgage payment towards your mortgage each year. In my book, Master Your Mortgage, I highlight that an individual could cut up to 3 years off their mortgage amortization by selecting an accelerated bi-weekly mortgage payment frequency. In Canada, mortgage interest is not calculated in advance, and the compounding period is semi-annually, which means the more frequent payment and extra payments reduce the total mortgage balance upon which the interest is calculated. When you couple frequent payments and make an additional payment, you have a recipe to reduce your interest cost and cut years off your mortgage.

How much interest can you save with an accelerated bi-weekly payment?

The amount of interest saved with accelerated bi-weekly could be in the thousands compared to other payment options. For example, a mortgage loan for $395,200 with an interest rate of 3% and a 25-year amortization will save $20,380.22 with an accelerated bi-weekly payment compared to only $252.32 on a bi-weekly payment option.

The total mortgage payment made between a monthly and bi-weekly frequency is the same in a year. In the chart above, the total mortgage payment made in year one will amount to $24,313 for accelerated bi-weekly compared to $22,443, a difference of $1,870, which is the extra mortgage payment.

Suppose you take the accelerated bi-weekly payment and convert it to a monthly amount, which equals $2,026.11 ($935.13*26/12). That’s a difference of $155.85 per month or an extra $72.32 bi-weekly compared to an accelerated bi-weekly payment that results in a $20,380.22 interest savings over the mortgage term.

Why is Accelerated Bi-Weekly Payment the Best Mortgage Payment Option?

A common goal shared by most homeowners is to save on interest costs and pay off their mortgage sooner. The best option I’ve shown to achieve this is accelerated bi-weekly as the additional payment required when compared to monthly or bi-weekly is manageable by most. The remaining payment options, such as monthly, semi-monthly, bi-weekly, and weekly, are offered for convenience but do not help pay your mortgage sooner or save you interest costs. As such, the best mortgage option to cut years off your mortgage is accelerated-biweekly or accelerated-weekly because you make an extra mortgage payment each year over your mortgage term.