For a mortgage with accelerated bi-weekly payments, how many payments are made per year and what is the primary benefit?
Correct Answer
C) 26 payments; equivalent to 13 monthly payments reducing amortization period
Accelerated bi-weekly payments result in 26 payments per year, equivalent to making 13 monthly payments instead of 12. This extra payment reduces the principal faster, significantly shortening the amortization period and reducing total interest paid.
Why This Is the Correct Answer
This answer is correct because accelerated bi-weekly means 26 payments a year (52 weeks divided by 2), each equal to half the monthly payment. Twenty-six half-payments equal 13 full monthly payments, one more than a monthly schedule. That extra payment reduces principal faster, shortening the amortization and reducing total interest.
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