The difference between regular, or ‘non-accelerated’, bi-weekly payments and accelerated bi-weekly payments is that the accelerated payments give you an extra FULL payment each year that goes straight towards your principle balance.
Here’s the breakdown:
There are 12 months in a year, but not every month has exactly 4 weeks, so there are actually 26 bi-weekly pay periods per year. For a regular bi-weekly payment, you would take your monthly payment and multiply it over the 12 months and then divide it by the 26 pay periods. On a $2,000 monthly payment, your regular bi-weekly pay would be $923.08. This is evenly spreading your regular payment out over the 26 pay periods.
In contrast, the accelerated bi-weekly payment would simply be your monthly payment divided in half. In the example above, you would now be making $1,000 payments every two weeks, meaning that each time you make a payment $76.92 is going towards your principle balance, interest free.
You know those two months each year where you receive 3 pay cheques from your employer instead of 2? These are the same months where those extra payments are applied to your principle balance.
If you’re going to make your mortgage payments every two weeks, I would definitely suggest the accelerated bi-weekly option as it helps you pay your mortgage off faster.