Accelerated Payments: The Simplest Way to Save $65,016

Of all the levers available on a mortgage, this is the one with the best ratio of benefit to effort. You choose it once, at signing, and then do nothing.

The mechanism

A standard bi-weekly payment simply takes your monthly amount, multiplies by twelve, and divides by twenty-six. Over a year you pay exactly the same total. It changes your cash flow, not your amortisation.

Accelerated bi-weekly does something different. It takes your monthly payment, halves it, and charges that every two weeks. Because there are twenty-six two-week periods in a year rather than twenty-four, you make the equivalent of thirteen monthly payments instead of twelve.

That extra payment goes entirely against principal. Every subsequent interest calculation runs on a smaller balance, and the effect compounds.

What it is worth

Take a $560,000 mortgage at an illustrative 4.89% over a 25-year amortisation:

The result: $65,016 less interest, and the mortgage clears 3.5 years early. The extra cost is $3,222 a year — one additional monthly payment, spread invisibly across the calendar.

A note on Canadian compounding

If you have modelled this yourself and got a slightly different answer, the compounding convention is the likely reason. Canadian fixed-rate mortgages compound semi-annually, not monthly. The periodic rate is:

i = (1 + APR/2)^(2/payments per year) − 1

Using the American monthly convention (APR ÷ 12) overstates the payment on this mortgage by roughly $16 a month. Our calculators use the Canadian formula.

Prepayment privileges are the other lever

Most mortgages also allow you to:

• Increase your regular payment by a set percentage each year
• Make lump-sum prepayments up to a percentage of the original principal annually

These are use-it-or-lose-it in most contracts — an unused allowance does not roll forward. Even modest, consistent use shortens the amortisation meaningfully, and every dollar goes straight to principal.

When not to accelerate

If your budget is tight, the thirteenth payment is real money leaving your account each year. Cash flow comes first: an emergency fund and higher-interest debt both outrank mortgage prepayment. The strategy works because it is sustainable, not because it is aggressive.

Figures in this article are illustrative and calculated using Canadian semi-annual compounding. Rates shown are examples, not offers. Government programme thresholds and insurance premiums are revised periodically — confirm current numbers before making a decision.

See the effect on your own mortgage — try the payment calculator.