When you think of all the decisions you need to make when purchasing a house, the frequency of your mortgage payments might not seem like a big deal. But this seemingly small decision has the potential to save you thousands of dollars and potentially shave years off of your mortgage.
How Choosing The Right Mortgage Payment Option Can Save You Money
Mortgage payment frequency refers to how often you make a mortgage payment. While a monthly mortgage payment is often seen as standard in the industry, there are several other payment frequencies to choose from, including:
- Monthly
- Bi-weekly
- Weekly
- Accelerated bi-weekly
- Accelerated weekly
The frequency of your mortgage payments impacts the amount of interest you pay over the term of your mortgage. More frequent payments can reduce the amount you spend on interest and the time it takes to pay off your mortgage.
Types Of Mortgage Payment Options
Most mortgage lenders allow you to choose from a variety of payment options. When selecting the payment frequency that’s right for you, carefully consider your goals and budget.
Fixed-Rate Mortgage Payments Options
With fixed-rate mortgages, you lock your interest rate in for the term of your mortgage. This means each payment is consistent and predictable, no matter what payment frequency you choose.
To highlight how the different payment frequencies can change the amount of interest you pay over time, let’s take a look at an example.
Say you want to purchase a $500,000 home. You have a $100,000 down payment and borrow a $400,000 mortgage.
You select a 5-year fixed-rate term, have an interest rate of 5% and a 25-year amortization period.
| Payment Amount | Number Of payments (5-Years) | Total Interest Paid(5-Years) | Total Principal Paid (5 Years) | |
| Monthly | $2,326.42 | 60 | $93,615.23 | 45,969.97 |
| Bi-Weekly | $1,073.13 | 130 | $93,568.16 | $45,938.77 |
| Weekly | $536.44 | 260 | $93,548.01 | $45,925.36 |
| Accelerated bi-weekly | 1,163.21 | 130 | $91,890.48 | $59,326.81 |
| Accelerated weekly | $581.60 | 260 | $91,809.07 | $59,408.23 |
Monthly Mortgage Payments
With a monthly payment frequency, you make one payment per month for a total of 12 payments per year.
Your monthly payments are $2,326.42. Over your five-year term, you’ll spend $94,717.96 on interest and $44,867.24 goes towards your principal.
Over the 25-year amortization period, you’ll pay $297,925.98 in interest and it will take the full 25 years to pay off your mortgage.
Bi-weekly Mortgage Payments
A bi-weekly payment frequency occurs every two weeks with a total of 26 payments per year. Every two weeks you’ll pay $1,072.54. In the five-year term, you’ll pay $94,682.05 in interest and $44,748.49 toward the principal.
Over the course of your mortgage, you’ll pay $297,534.68 in interest.
Weekly Mortgage Payments
If you choose a weekly payment frequency, you’ll have 52 mortgage payments per year. Each payment is $536.44.
After the first five-year term, you’ll have paid $93,548.01 in interest and $45,925.36 towards the principal.
You’ll pay $297,366.92 in interest over the 25-year amortization period.
What Are Accelerated Mortgage Payment Options?
Accelerated mortgage payment options, including accelerated bi-weekly and weekly allow you to pay your mortgage off faster. Both options allow you to make one extra mortgage payment per year that is spread across your regular payments. So, in 12 months, you’ll pay off 13 months of your mortgage.
Accelerated bi-weekly Mortgage Payments
An accelerated bi-weekly payment option helps you pay off your mortgage sooner by adding one extra payment divided across the 26 payments per year.
You’ll make a payment of $1,163.21 every two weeks. After five years, you’ll have paid $91,890.48in interest and $59,326.811 towards your principal.
Over the 25-year amortization period, you’ll pay $249,577.02 in interest.
If you stick to accelerated bi-weekly payments, you can shorten your amortization period and pay off your mortgage within 22 years.
Accelerated weekly Mortgage Payments
With accelerated weekly payments, you make a payment of $581.60 weekly for 52 payments per year. Accelerated weekly payment adds an extra monthly payment that is spread across all of the year’s payments.
After a five-year term, you’ll have paid $91,809.07 in interest and $59,408.23 towards the principal payment.
Over the 25-year amortization period, you’ll pay a total of $249,028.11 total interest.
You can pay off your mortgage within 22 years if you stick to your accelerated payment plan.
What Are Your Variable Rate Mortgage Payment Options?
With a variable-rate mortgage, your interest rate can go up and down over the course of your mortgage term. This type of mortgage is beneficial if interest rates are falling. But, if interest rates are on the rise, you’ll end up paying more. Variable mortgage payment options include:
- Variable-Rate Mortgage (VRM): With a fixed-payment VRM, your monthly payments stay the same, but the amount you pay towards interest versus your principal changes. As the prime rate increases, more of your payment goes towards interest.
- Adjustable-Rate Mortgage (ARM) Payments: With an ARM, your monthly payments won’t always stay the same. Your payments can rise and fall each month as the prime rate changes.
Can You Make Interest-Only Mortgage Payments?
Interest-only mortgages are an alternative mortgage option that allows you to pay only the interest portion of your mortgage payment over a certain introductory term.
During this time you make no payments on your principal which can help to lower your monthly payments. Once the intro term ends, you’ll either have to start making principal payments, refinance your mortgage, or sell your house.
What Is The Cheapest Way To Pay Off A Mortgage?
An accelerated weekly payment frequency is the cheapest way to pay off your mortgage. Over a 25-year amortization period, you’ll pay $48,897.87 less in interest versus a monthly payment frequency.
An accelerated weekly payment frequency also gives you the opportunity to pay off your mortgage within 22 years instead of 25 years with a monthly payment frequency.
Can You Change Your Mortgage Payment Frequency?
Many banks and mortgage lenders allow you to change the frequency of your mortgage payments at any time during your mortgage term. You can typically request this change by phone or online. Before changing the frequency of your mortgage payment, reach out to your lender to ask if there are any fees.
Can You Make Extra Mortgage Payments?
Your mortgage company might allow you to make extra payments to pay off your mortgage sooner. There are a few ways you can do this:
Lump Sum Payment
A lump-sum payment is a one-time payment that your lender may allow you to make on top of your regular mortgage payments. There are usually limits on how often and how much you can contribute.
Increase Payment Amount
You can also check with your mortgage company to see if you can increase your regular payments by a certain amount each year. Some lenders will charge a prepayment penalty if you increase your payments over a set limit.
Also, once you increase your payments, you usually can’t lower them again until the end of your term.
Which Mortgage Payment Option is Right For You?
If you want to pay off your mortgage faster and spend less on interest, an accelerated weekly or bi-weekly payment frequency can help you achieve it. If you can’t commit to an accelerated schedule, no problem. Many lenders allow you to change the frequency of your payment at any time.
Giving yourself an opportunity to think through the different mortgage payment options can help you find the one that best fits your goals and budget.
