Real Estate

Mortgage Bi-weekly payment + up to 20% or Accelerated Bi-weekly

  • Last Updated:
  • Apr 24th, 2020 12:25 pm
[OP]
Newbie
Feb 13, 2017
76 posts
9 upvotes
Scarborough

Mortgage Bi-weekly payment + up to 20% or Accelerated Bi-weekly

Hi

Would it make sense to set mortgage payments to bi-weekly with the option to increase the payment up to 20% additional or go with accelerated bi-weekly. Likely would not be comfortable adding 20% option to accl. bi-weekly payment.

I figure with the bi-weekly payment I have the lower payment to fall back on if needed but will likely be able to increase payment same as accl. bi-weekly payment. Would it have the same affect?
11 replies
Deal Fanatic
Oct 7, 2007
8335 posts
4300 upvotes
Which one works out best might depend on your financial situation. If you have steady cash flows, it might be easier to commit to a certain payment. If not, being able to put down a lump sum each year might be better. The best scenario would be having the flexibility to do whatever you want in terms of moving your payment amount up or down. Basically, the sooner you pay off the mortgage, the less interest you are paying to the bank. It is all about time.
Deal Guru
Dec 11, 2008
10086 posts
1515 upvotes
It is about flexibility. At theses rates the difference may not be huge.

The question is how many times can you make lump sum payments or increase your payments 20% or both with no fee vs accelerating your payments upfront.
Deal Addict
Nov 24, 2013
1383 posts
737 upvotes
Toronto
You should be able to do both accelerated bi-weekly and a certain percentage per year on top of that. Some lenders even allow you to add to your regular payments.
Sr. Member
User avatar
Jul 25, 2015
696 posts
348 upvotes
Burnaby, BC
20/20 it's pretty good. Increase payments by 20% and also lump sum of 20% of the mortgage amount. So if your mortgage is 1mil, can add up to 200k in lumpsum/year and also increase the payments say from 10k/month to 12k/month. Savings on interest will be huge.

On the other hand get ready to pay 344k a year...
It depends on your liquidity.
Sr. Member
Nov 16, 2013
715 posts
200 upvotes
GTA
With rates so low on variable, if you have job security then no need to make any prepayment . Invest that money for 5 years
Deal Addict
Dec 7, 2011
2348 posts
781 upvotes
Whitehorse
Can't you do double payments? Some mortgages allow for double payments, but you may have to call in every time you want that. You can also tell them to start it for a specific length of time, then call again to extend it (or not).

That way you could keep your monthly payment, but add a double payment to select months. Or you go weekly and add a payment here or there - that's more granular.
Member
Feb 15, 2018
333 posts
406 upvotes
Rates are super low and I personally do not see the reason for such accelerated prepayments. The joys of a mortgage are to have inflation do all your work. I pay the minimum amount and in 10 years from now that amount will look like peanuts due to inflation - when minimum wage will be $20/hr. I would personally use those prepayment lump-sums to put a deposit on other properties and take advantage of the twin wonders of leverage and inflation.
[OP]
Newbie
Feb 13, 2017
76 posts
9 upvotes
Scarborough
Thanks all for advise.

I feel comfortable with the lower payment (bi-weekly) with the flexibility of increasing each payment up to 20% rather than commit to higher payment of accl. biweekly.

Would it be the same affect just increasing my regular bi-weekly payments with the 20% payment increase option to that of the accl. biweekly payment. I figure it's still the same number of 26 payments.
Deal Fanatic
Nov 24, 2013
6213 posts
2959 upvotes
Kingston, ON
anthonyvl7101084 wrote: Thanks all for advise.

I feel comfortable with the lower payment (bi-weekly) with the flexibility of increasing each payment up to 20% rather than commit to higher payment of accl. biweekly.

Would it be the same affect just increasing my regular bi-weekly payments with the 20% payment increase option to that of the accl. biweekly payment. I figure it's still the same number of 26 payments.
There’s definitely more flexibility to a lower base commitment with the option of either increasing payment or making prepayments. Say you’re applying for any other debt (car, loan, cottage, investment property, whatever) the lender is going to use your actual mortgage payment to determine your debt service ratios, even though that higher accelerated or increased payment is completely voluntary. Some people don’t need to or plan on applying for other debt so that doesn’t matter, but for max flexibility, yes lower payment is better, and using separate prepayment rather than increased regular payment.

To your other question, accelerated is about 8.3% higher than base biweekly, so “accelerated” is actually lower than base+20%. In short, “accelerated biweekly” = Monthly divided by 2. Say you’re talking about a 25yr mortgage, $580k, 2.59% (rough numbers), the baseline monthly payment works out to ~$2,600 a month, or $31,200 a year. Base biweekly is $1,200 b/w, the same $31,200 a year. Accelerated is simply half the monthly baseline, paid biweekly, or $1,300 b/w, $33,800 a year. It works out to making 13 monthly payments in 12 months.

20% payment increase is more than that. Instead of $1,200 biweekly, you’d pay $1,440, or $37,440.

Alternatively you don’t have to choose a 25 year amortization. You can choose 19.5 years if you want to. You can also shorten your amortization at renewal. It’s not set in stone. These also have the effect of increasing your base payment, and you can again do 20% increases or accelerated on top of those. It’s only a refinance if you increase amortization, not reduce. Caveat, lower amortizations reduce your flexibility for the same reason choosing accelerated does, AND you do have to qualify based on that higher payment if you lock it into the mortgage like that.
[OP]
Newbie
Feb 13, 2017
76 posts
9 upvotes
Scarborough
Thanks Mike, yes good point about going with bi-weekly payment with additional increase 8.3% to make up accl. biweekly or even up to 20%. Actually I prefer that flexibility having young children (daycare/afterschool) is a big chunk for the next few years.

Appreciate your tips.
Sr. Member
Jan 13, 2016
535 posts
286 upvotes
Vancouver, BC
What i've done is set up a pre authorized payment to put money in savings and then i make the mortgage prepayment with that money. That way i have flexibility that if i choose i do not make the prepayment that month. If you wait for a lump sum at end of year you may not have the money.

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