Determining your Payment
When you head into the property market to purchase a property, you will most likely have to get a mortgage from a bank. Once you are approved for this mortgage, regular payments will be required until the mortgage’s total settlement amount has been paid off. However, different aspects will determine the level of your regular payments:
- Mortgage Rate: In simple terms, the higher the interest rate, the more expensive your payments will be. A mortgage rate can differ significantly depending on where you obtain your mortgage, as well as the current economic scenario.
- Mortgage Amount: Of course, this is obvious; the more you borrow, the higher your payments will be. On top of this, if you put down less than 20% for your deposit in Canada, you will have to pay for CMHC insurance.
- Payment frequency: The more payments you make in a year, the smaller your payments will be.
- Amortization Period: In simple terms, this is the length of your mortgage, and the longer it is, the smaller your regular payments will be. However, this will also result in a higher overall repayment amount.
What are the different types of Mortgage Frequency?
A monthly mortgage payment will come out of your bank account on a set day each month. This means that you will make 12 payments per year. This is the most conventional mortgage frequency set up.
Bi-weekly mortgage payment comes out of your bank account every 2 weeks. This means you will make 26 payments per year. This can be more beneficial for individuals paid on a bi-weekly cycle rather than paid weekly or monthly.
Accelerated Bi-Weekly Mortgage
Like the standard bi-weekly in that you pay for your mortgage every 2nd week, the calculation to determine your payments is slightly different. You would divide your conventional monthly payment by 2 to get to this figure. In contrast, the standard bi-weekly multiplies the monthly by 12 and then divides by 26.
- Monthly = $1,500
- Bi-Weekly = ($1,500 x 12)/26 = $692
- Accelerated = ($1,500/2) = $750
As you can see, the payments on the Accelerated bi-weekly are slightly higher.
As the name states, this would involve paying for your mortgage weekly. This is calculated by taking your monthly mortgage, multiplying by 12 and then dividing by 52. This is beneficial for those who may be paid weekly or wish to spread out the payments as much as possible.
Accelerated Weekly Mortgage
Similar in set up to the Accelerated Bi-Weekly, this is calculated in the same manner. You take your monthly payment and divide it by 4 to get your weekly payment. This will be slightly more than your standard weekly mortgage rate.
- Monthly = $1,500
- Weekly = $346
- Accelerated = $375