When it comes to managing your paycheck for your mortgage payment of our house it becomes very tedious at times to keep track. There must be a way to structure it! To be able to understand and manage your money you must set a period in which you can break your payment. Fortunately, there are two ways in which you can break your payment i.e. bi-weekly and Accelerated bi-weekly.
Bi Weekly vs Accelerated Bi Weekly
The main difference between Bi-weekly and Accelerated Bi-Weekly is that in a bi-weekly payment you need to pay twice a month whereas Accelerated Bi-weekly requires you to pay every once every two weeks. If you follow a Bi-weekly method of payment then by simple calculation you need to pay 26 times and if it is Accelerated Bi-weekly then also it comes down to 26 payments in a year but the payment is equivalent to a payment of 13 months.
A bi-weekly mortgage payment is one of the different frequencies for payment. Bi-weekly payments allow us a payment of mortgage every twice a month which gives a total of 26 payments in a year. Here the number of payments is 26 because the lender divides the total amount by 26. Bi-weekly payment in effect is the payment that you would make for 12 months.
Accelerated Bi-weekly payments are intended to make the mortgage payment a bit easier but the amount paid is a bit more compared to bi-weekly. The frequency of payment is decided by dividing the no of weeks in a year by two which results in no of payments to 26 same as bi-weekly. The amount paid however is equivalent to the amount paid for 13 months.
Comparison Table Between Bi Weekly and Accelerated Bi Weekly
| Parameters of Comparison | Bi weekly | Accelerated Bi weekly |
| Amount | In bi-weekly payments, you need to pay less. | If you choose this payment option then you pay a bit more. |
| Calculation of no of payment | When the entire payable amount is multiplied by 12 and divided by 26 it gives the no of payments. | Divide the monthly amount by two and you will get the amount payable. |
| Payment equivalent | It is equivalent to 12 months of payment. | It is equivalent to 13 months of payment. |
| Fastness | It is a slower mode of payment. | It is a faster mode of payment. |
| Interest saving | This method will lead to higher interest payments. | This method helps you reduce interest payments. |
What is Bi Weekly?
The bi-weekly payment method is a mortgage payment method that is less costly when it comes to the amount paid per period. The number of payments is arrived at by taking the total payment for 12 months and then dividing it by 26. In total, the number of payments made per is year is 26. The mode of payment is a bit slower when compared and it costs more than the accelerated mode of payment.
Bi-weekly payments are made to make it easier and when compared to the monthly payment method it is a bit faster. The payment method in effect helps you lower your principal amount when compared to monthly payments faster but it is lesser when compared to the accelerated version of Bi-weekly. Bi-weekly payment is a slightly slower mode of payment than the weekly payment method in which you need to pay every week.
This mode of payment is offered generally by third-party lenders. This mode of payment reduces the loan term but the extra fee paid to the lender burns a hole in the pocket. The payment using this method is extra which could be compensated in monthly payments by just paying one extra mortgage. The involvement of the third party is because the moneylender does not prefer to take half payments.
What is Accelerated Bi Weekly?
Accelerated Bi-weekly payments are a faster way to complete your mortgage payment. The mortgage payment method allows you to cool down the loan period but is a little bit heavier on your pocket. You end up paying one extra payment in a year which helps you lower the principal amount much faster when compared to normal bi-weekly. Accelerated bi-weekly payment is arrived at by multiplying the amount payable by 2 and then dividing it by 26.
The amount deducted from your bank follows the period of two weeks. The payment method is intended to accelerate the payment method and hence the name accelerated bi-weekly. The number of payments is still 26 as that of bi-weekly but the amount payable is a bit higher. Depending on the terms and conditions of your loan the saving amount is higher as it helps you repay the loan faster which in turn helps you deplete your principal amount faster.
Owing to the fast depreciation of the principal amount the interest payable reduces by a greater margin. The no of payments made per year is one more than regular payments. You in total end up making thirteen payments in a year which is one higher than the monthly payments. The payment method can end up being a load or a boon depending on the third party that helps you convert your payment into accelerated bi-weekly.
Main Differences Between Bi Weekly and Accelerated Bi Weekly
- Bi-weekly and Accelerated Bi-weekly payment methods differ in the amount to be paid every period. In Bi-weekly payment, the amount is lesser.
- Accelerated bi-weekly allows you to burn up the principal amount faster when compared to Bi-weekly.
- Bi-weekly payments are not very helpful in savings when compared to accelerated bi-weekly payments.
- To calculate the amount is bi-weekly payment take the amount payable for 12 months and divide it by 26 whereas in accelerated bi-weekly the monthly payment is divided by 2.
- Accelerated bi-weekly is helpful in reducing interest payable faster whereas bi-weekly is slower and interest payable every period is higher.
Conclusion
Bi-weekly and Accelerated bi-weekly payment methods are intended to fasten up the process of loan payment for the house. It is achieved by increasing the payment frequency and the payable amount each period. The amount payable in each of the payment methods is higher than that of the monthly payment methods. The payment bi-weekly is slightly lesser when compared to accelerated bi-weekly.
Accelerated bi-weekly allows a faster cooling-off period of the loan as the amount payable is larger. It also allows saving more as the payment made every time helps reduce the principal amount faster. In the bi-weekly payment method, the amount payable is a little lesser which in turn leaves a larger payable principal amount. It impedes the payment and ends up saving less for the customer.
References
- https://dc.etsu.edu/cgi/viewcontent.cgi?article=1336&context=honors
- https://www.clutejournals.com/index.php/IBER/article/view/3494
- https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1475-6803.1987.tb00472.x