Mortgage Payment Frequency

When you a buy a home on a mortgage, it is essential to plan and organise the way you will make the mortgage payment. It will help you to avoid paying interest and other charges incurred for non-payment of monthly mortgage instalments in a timely manner. How much you pay and how frequently you make the monthly payments depends on the mortgage payment frequency you choose. There are different mortgage payment alternatives available to make it easy for borrowers make monthly payments such as: monthly, bi-weekly, accelerated bi-weekly, weekly, or accelerated weekly.

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Payment Frequency Alternatives

Period Payments/year
Monthly 12
Semi-Monthly 24
Bi-Weekly 26
Accelerated bi-weekly 26
Accelerated weekly 52

Monthly Mortgage Payment

When the mortgage installment is withdrawn from the borrower’s bank account on the same day of every month, it is known as monthly mortgage payment. In this case, the borrower pays 12 mortgage installments in a year.

Bi-Monthly Payment Plan

In bimonthly or semi-monthly payment plan, the borrower’s monthly payment in divided into two pieces of equal size. One of which is usually due on the 15th of the month and the other on the first, so that borrower makes 24 payments in a year.

Bi-Weekly Mortgage Payment

When the borrower makes a payment equal to half the monthly payment every two weeks, it is known as bi-weekly mortgage payment. In order to calculate bi-weekly mortgage payment, monthly mortgage payment is multiplied by 12 months and divided by the 26 pay periods in a year as there are 26 biweekly periods in a year compared to 24 bimonthly periods.

Accelerated Bi- Weekly

In case of accelerated bi-weekly frequency, total annual payment amount is divided by 24 (as if the payments were being made on a semi-monthly frequency). However, borrower still makes 26 payments during the year. Thus, accelerated bi-weekly payments allow borrower to make two extra payments in a year which translates into 13 monthly payments instead of 12 monthly payments in a year. These extra payments reduce the principal as well as saves interest in long run.

Accelerated Weekly Mortgage Payment

Accelerated weekly payments are calculated by dividing the monthly payment by 4 and this way borrower will make 52 weekly payments in a year. The amount is withdrawn from borrower’s bank account every week. Such payment schedule reduces the amortization period and saves you substantially in interest.

The accelerated alternatives allow borrowers to make extra payment against principal as part of their regular payment stream. It will not only save you interest in long run but it will also reduce the amortization of your mortgage. Most of the experts suggest weekly payment as the best mortgage payment plan to minimize their interest costs.

The Canadian Government’s Home Buyers Plan allows home buyers to borrow funds from their RRSP or registered retirement savings plan to buy or build a qualifying home. Under the home buyers plan, first time buyers can take \$25,000 out of their registered retirement savings plan which is required to be paid back over the next 15 years without incurring any penalty. In case of a couple buying a home, it means \$50,000.

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The Canadian Government’s Home Buyers Plan allows home buyers to borrow funds from their RRSP or registered retirement savings plan to buy or build a qualifying home. Under the home buyers plan, first time buyers can take \$25,000 out of their registered retirement savings plan which is required to be paid back over the next 15 years without incurring any penalty. In case of a couple buying a home, it means \$50,000.

Eligibility Conditions to use RRSP for Buying A Home

• In order to be eligible for the plan, the RRSP funds being used by the buyer must be on deposit for at least 90 days prior to withdrawal.
• The buyer should be a Canadian resident and provide a signed agreement to buy a home or build a qualifying home.
• The buyer should not have owned a home within the previous four years. In case, the buyer is buying home with a spouse or legal partner who is not a first time home buyer, one must not have in a house they owned for 4 years.
• Buyer must intend to live in a home within one year of purchased.
• Those who have earlier used the home buyer’s plan, they need to make sure that there are no pending dues of the any previous plan.
• One must make a withdrawal from his RRSP within a month of getting the title of the home.

Repayment

The payback amount is at least one-fifteenth a year of the amount the buyer withdrew from his RRSP. Home buyer using RRSP is required to repay the amount within fifteen years. The first payment is due after two years of first time withdrawal of the amount. You will get a notice of assessment from Canada revenue agency indicating the amount of loan repaid and balance required to be paid. In order to repay the loan, one must make a contribution to your RRSP in the year the repayment is due or in the first 60 days of the following year. It is better to set up RSP-Matic®, an automatic monthly, bi-weekly or even weekly contribution to your RRSP, so that repayments are not missed.