# Conon Pope's Irish Times article: knock 20% off mortgage repayments fortnighlty pmts



## Newbie!

This article was in the IT today regarding how we can decrease our overall mortgage interest.

[broken link removed] 



> by....CONOR POPE
> *MORTGAGE REPAYMENTS:* HOW  WOULD you like to knock as much as 20 per cent off the cost of your  mortgage without breaking a sweat? Believe it or not, it can be done –  and it is not hard – yet for reasons that are beyond us, virtually no  one is doing it.


 
I am a tracker mortgage holder with KBC and would be curious to know if any tracker mortgage holders do pay their mortgage fortnightly? I have yet to call the back to enquire if it is possible.

newbie.


----------



## Brendan Burgess

That is a disappointing article from Conor Pope. 



> “The mortgage holder could knock almost €54,000 off the cost of their loan,” says Frank Conway, director of moneycoach.ie.


It stems from a failure on the part of Conor and the Moneycoach to understand the time value of money. Indeed, most people don't understand this. 

The "€54,000" is over 30 years. A euro in 30 years time will be worth a lot less than a euro today. So adding them up is a meaningless, exercize. 

You should review the cost of your mortgage  on an annual basis based on the APR. So if you have an interest only  mortgage of €300,000 @ 5%, the true cost of your mortgage is €15,000.  It will be less if it's a repayment mortgage. It will be a bit less again, if you pay your monthly repayment a bit earlier. 

So if you have money sitting in your current account earning no interest, it is better to pay it against your mortgage. You will save a few hundred 2011 euros by doing so. Review the strategy next year and remember that you are then dealing with 2012 euros.

He may as well have said "How to save €279,000 on your mortgage". The answer repay your mortgage in full today, so you don't have to pay any interest. 

*Exactly how much will you save this year by paying your mortgage twice a month, instead of monthly? 
*
  300,000 @ 5% for 30 years will result in a monthly repayment of €1610.46

   If you pay €805 in the middle of January, instead of at the end of January, you will save €1.55 in interest. If you do this every month in the year, you will save €18.57 that year. In other words, your mortgage will be €18.57 lower at the end of that year.You can round this up to €20 to allow for interest on interest saved. 


   This is the correct way of looking at it. 


*Note the difference between "twice a month" and "every two weeks"
*This is imporant. Twice a month is 24 payments a year. Every two weeks is 26 payments a year. If you make more payments you will pay off your mortgage quicker. 

_Edit: It appears that Conor's calculations are based on making fortnightly payments, so you would be actually paying an extra €1,800 each year. So, of course this is going to save you interest._

*You probably should not make any change to a tracker mortgage
*It is likely that the lenders will offer some incentive to people to increase their repayments on a tracker mortgage. If you have already done so, they won't give you an incentive. See this post "Bank won't revert mortgage term"


----------



## NorfBank

*Paying twice monthly to make huge savings is a myth. *

Granted you may shave a small sum off the mortgage but the only way to save the 54k as described is to pay bi-weekly i.e every two weeks = 26 payments = 13 months.

As you are paying back an extra month, this is taken off the capital sum resulting in the large savings as described in the article.

A simple way of doing this for those who wish to continue to pay monthly is to divide your current mortgage repayment by 12 and add the resulting figure to your monthly repayment.

e.g you pay 2400 per month. Divide by 12 = 200. Add 200 to your current repayment = 2600 per month. This will have the same effect as making bi weekly payments but without the hassle of having to make 26 payments per year. 

The only people who should switch to bi weekly payments are those that are paid twice per month...if you ask me.

You cannot save 54k in mortgage interest by repaying the same amount - if it sounds too good to be true, it usually is.

[broken link removed]


----------



## matc66

I thought as much. I read the article two times because I couldn't understand how you save money if you do what he says.
If I pay off 100 at the beginning of the month from 1000, then for the rest of the month I'll be charged interest on 900, but if I pay off 50 then I'm charged interest on 950 for the first half. 
Am I wrong??


----------



## Ardent

Brendan Burgess said:


> *You probably should not make any change to a tracker mortgage
> *It is likely that the lenders will offer some incentive to people to increase their repayments on a tracker mortgage. If you have already done so, they won't give you an incentive.



I'm not sure this is good advice. You WILL save money by repaying your mortgage twice-monthly as opposed to monthly. To not make this change in the hope the bank will offer you some deal down the line doesn't make sense to me.

Anyway, I rang BOI and they seem to be engaging in a campaign of fear, uncertainty, doubt. They claimed that, although the interest is calculated daily, the interest is applied quarterly and so any savings are marginal!! Can anybody here understand that viewpoint..?


----------



## thedarkone

This appears to me to be hokum.  Ardent, (or anyone) can you explain to me how, if interest is being charged daily, and I have to pay €100 to pay off a loan it makes sense for me (if I'm only interested in reducing my mortgage interest) to pay €50 now and €50 in a fortnight's time rather than €100 now?  

Though it must be said I think this whole "pay down your mortgage early" is bad advice.  Simply put  in my case - such advisors want me to lock away money for the next 15 years to save 1.55%, when I can save and earn 3%+ post DIRT and have ready access to the cash (see key post by Brendan in this General Finance forum)...and that is good advice?  yeah rih.


----------



## michaelm

It was a poor and potentially misleading article.  It pretends that there are huge saving to be had by paying half the mortgage amount twice a month.  The claimed savings are based on fortnightly payments.  The best a wages paid-monthly mortgage holder can do, other than pay lump sums and increase repayments, is to have the mortgage payment come out on the same day as they get paid.


----------



## Ardent

My understanding is as follows:

Interest is paid in arrears. This means your  principal and interest payment will pay the interest for the 30-day  period immediately preceding your payment due date. 

So, say your payment is due December 1. When you make your payment for December 1, you are paying  the interest for the entire month of November, all 30 days.

The article seems to suggest that, it's better to pay half the payment on November 15 and the other half on Decemeber 1. Given that interest is calculated on a daily basis, this will reduce the amount of interest due.

I'm no expert but it sounds perfectly reasonable to me.


----------



## thedarkone

Ardent said:


> The article seems to suggest that, it's better to pay half the payment on November 15 and the other half on Decemeber 1. Given that interest is calculated on a daily basis, this will reduce the amount of interest due.



Ardent, if this is how you and Conor Pope are arriving at the savings then fine, but lets be clear - this is simply mortgage overpayment by another name, , and not from some magical moving to bi-monthly, which the article seems to suggest.  

Example: If - as I suspect is the case for most people - my mortgage payment is synchronised with my monthly salary, to achieve the saving I would need to find and pay an extra €50 (in my example) 2 weeks before (15 Nov) I get paid (on 1 Dec) in order to secure the savings talked about

...i.e. mortgage overpayment....

Fundamentally: if the IT wanted to write an article about overpayment of mortgages then they should have done so in a straightforward manner, hence I suspect the general disappointment with this article on this forum.


----------



## NorfBank

It's a ridiculous article, it purports that you can save €54k simply by paying your mortgage twice monthly instead of once a month. 

I have been inundated with calls from clients asking why I didn't tell them this so it has taken up a lot of time explaining it.

The only way you can make those savings is by paying bi-weekly, i.e every fortnight so 13 months paid instead of 12.

This is simply overpaying your mortgage as alluded to by thedarkone.


----------



## DerKaiser

I'd say the administrative cost of the banks trying to pander to people paying small amounts whenever they feel like it would more than eat up the interest savings.

How about this?  If you believe this is such a money saver, why not pay your first mortgage repayment in advance on the day you take out the mortgage.  That'll save you even more than paying twice monthly in arrears and save the messing.

Just for the record, say you borrow €300k for 20 years at 5%, you can either repay:
€1961.51 each month (Payment in full on the last day of the month) or
€1959.51 each month (Half paid in the middle of the month, half paid at the end of the month). Congrats, you've reduced your repayments by 0.1%, hardly worth calculating!


----------



## Brendan Burgess

Der Kaiser

I got the impression from reading the article quickly that he was proposing two payments a month, rather than every two weeks. 

So even the €54,000 is completely wrong and is primarily due to the fact that they are paying an extra payment every year. 

Are you sure of your figures? I get €1979.87 from Dr Calculator. 

Anyway, what is the effect of paying half of it mid month and half at the end of the month?


----------



## DerKaiser

Brendan Burgess said:


> Are you sure of your figures? I get €1979.87 from Dr Calculator.



That would correspond with using a monthly interest rate of 5%/12 (or 0.4166%) which would be 5.116% APR, I'm cutting to the chase and using 5% APR (or 0.4074% per month)



Brendan Burgess said:


> Anyway, what is the effect of paying half of it mid month and half at the end of the month?



The best way of thinking of it is that you'll get half a month's interest on the money you repay half a month early. In this case you'd get half a month's interest (0.2%) on the half payment (€1k). That's a €2 per month impact whatever way you look at it.

You'd achieve the same or more by leaving it on deposit for the half month.


----------



## DrMoriarty

But most people's mortgage repayment probably comes out of a current account earning almost zero interest (as Brendan said above).

I agree that the article overeggs the potential saving and is misleading, but I'm quite happy to pay my NIB tracker in twice-monthly (not fortnightly) payments. The first payment comes out a day or two after I get paid, the second a few days after all my DDs and my credit card. There's no extra "hassle" involved, and it saves me a few quid. It certainly beats watching my balance and moving funds from an interest-earning account into my current account only as needed, which is what you seem (?) to be suggesting as the alternative.


----------



## anotherdub

Ardent said:


> My understanding is as follows:
> 
> Interest is paid in arrears. This means your  principal and interest payment will pay the interest for the 30-day  period immediately preceding your payment due date.
> 
> So, say your payment is due December 1. When you make your payment for December 1, you are paying  the interest for the entire month of November, all 30 days.
> 
> The article seems to suggest that, it's better to pay half the payment on November 15 and the other half on Decemeber 1. Given that interest is calculated on a daily basis, this will reduce the amount of interest due.
> 
> I'm no expert but it sounds perfectly reasonable to me.



Your point is correct - this will reduce the  amount of interest due. However, by nothing as much as the article claims.



			
				Irish Times said:
			
		

> But if you pay off €500 every fortnight, then for the second half of  that first month, the amount of interest you pay is less because for two  of the four weeks, the capital owed is €99,500.



As most of each of my payments in the early days is interest, less than 1/3 (taking the 30 year example) of my payment goes towards the principal, so the amount of capital owed is closer to €99,350.  So I save half a month's interest on €150 each month, or about €7.50 per year.



			
				Irish Times said:
			
		

> In this scenario you will pay a little bit more, admittedly.



Yes, 8.33% more per month to be precise.

Another section of the article talking about "a customer taking out a 30-year mortgage but paying it off over 15 years  can save themselves €152,737 in interest charges" is also misleading.
Why not take out a 40 year mortgage and pay it off over 15 years and save even more? Surely most people affected by this article already have mortgages and so cannot change the term. The main point should be that paying a mortgage off quicker can save you in interest payments, *if* the interest rate of your mortgage is higher than the net rate in a savings account. 
Taking out a mortgage for a longer term than you intend paying it off over does allow the flexibility of reducing monthly payments without penalty if desired, but paying off a 30 year mortgage costs exactly as much as taking out a 15 year mortgage if you pay both off over 15 years.
Looks like he's just quoting the mortgage broker's sales pitch verbatim.

I see the Irish Times have now made some corrections, but not all.  It's still a badly worded and misleading piece. Not one of Conor Pope's better articles.


			
				Irish Times said:
			
		

> _This article was amended on April 4th, 2011.  In the  original, it incorrectly stated such savings would come at no additional  cost to the mortgage holder. While some small savings can be made by  simply splitting payments from monthly to twice a month, they are small  as the mortgage holder is not paying off the capital any faster._


----------



## Yakuza

They've updated the article now as the original premise was rubbish (significant savings to be had merely by paying half as much twice as often).  It is amazing how the author blithely ignored the difference between "twice a month" and "every two weeks".

I knocked a spreadsheet together for a similar thread on Boards.ie (I had a link to it in DropBox but I just discovered I can't link it as I am a relative newb here in posting terms).
It shows the effect of paying monthly on one side and the other side, that of paying twice a month (but half the amount each time).  For the case in point (300k, 30 years, 5%) , the savings turn out to be of the order of  €2000 (or about a month and a bit off the term), which has a present value of about €460.

I used an annual rate of 5% compounded monthly in my calcs, it may vary slightly from others done using 5%/12 etc.

Personally, I get the same effect (and with much less hassle of having to make sure that cash would be in the feeder account at the right time) by just throwing a quarter of a month's payment against the balance every couple of months (I have an NIB tracker and their online banking is very good).  By not doing the every-two-weeks thing I also allow myself the flexibility to not make the extra payment if things are tight.


----------



## Brendan Burgess

anotherdub



> Another section of the article talking about "a customer taking out a  30-year mortgage but paying it off over 15 years  can save themselves  €152,737 in interest charges" is also misleading.
> Why not take out a 40 year mortgage and pay it off over 15 years and save even more?



That is absolutely brilliant. I have had great trouble explaining to people why these sort of statements are meaningless and have never managed to do so. Your example, makes it much clearer.


----------



## Brendan Burgess

I see the correction on the Irish Times website, but the thrust of the article seems to be the same? 



> HOW WOULD you like to knock as much as 20 per cent off the cost of your  mortgage without breaking a sweat? Believe it or not, it can be done –  and it is not hard – yet for reasons that are beyond us, virtually no  one is doing it.


This contributes to the general view that mortgage lenders are tricking their customers out of money.

From this very long thread on the topic on boards.ie  , apparently Conor was on Newstalk saying the same thing and some other mortgage broker said it on Matt Cooper yesterday evening.


----------



## Greekwife

Conor Pope has a new article on this in today's Irish Times.

Unfortunately as I have only just joined this site I can't post the URL.  But it is entitled "[broken link removed]


----------



## dewdrop

I must say i am disappointed with the general tone of this article as it focuses mainly on the attitude of banks to repayments other than monthly whereas a clear error was made in the original article.


----------



## Brendan Burgess

To save people reading this long thread, I have amended my original reply. 

Are these numbers correct? 

 300,000 @ 5% for 30 years will result in a monthly repayment of €1610.46

  If you pay €805 in the middle of January, instead of at the end of January, you will save €1.55 in interest. If you do this every month in the year, you will save €18.57 that year. In other words, your mortgage will be €18.57 lower at the end of that year.You can round this up to €20 to allow for interest on interest saved. 


  This is the correct way of looking at it.


----------



## dobbins

Brendan Burgess said:


> To save people reading this long thread, I have amended my original reply.
> 
> Are these numbers correct?
> 
> 300,000 @ 5% for 30 years will result in a monthly repayment of €1610.46
> 
> If you pay €805 in the middle of January, instead of at the end of January, you will save €1.55 in interest. If you do this every month in the year, you will save €18.57 that year. In other words, your mortgage will be €18.57 lower at the end of that year.You can round this up to €20 to allow for interest on interest saved.
> 
> 
> This is the correct way of looking at it.


Agree with all that but why wait until the middle of January? Why not the start? Or December? Why not just pay the whole mortgage off in the first month and not pay any interest at all? Ridiculous articles by the Irish Times. Most people, I presume, pay their mortgage each month as soon as they get paid. These  articles are confusing and mis-leading.

1. As pointed out by Brendan and others, the original article was 100% incorrect when it stated you could save 20% by paying twice a month instead of once a month. This is not true.

2. Then to make a big song and dance about saving thousands by paying every fortnight instead of once a month. You're making extra payments! Of course you'll pay less interest. You'll save money over the course of the mortgage but it's costing you more money every month. YOU'RE MAKING EXTRA PAYMENTS! (What's the fortnight thing got to do with it anyway? You could make your extra payments once a month anyway).

Poor, poor journalism from the Irish Times I'm afraid.


----------



## Brendan Burgess

> Poor, poor journalism from the Irish Times I'm afraid.



To be fair to Conor Pope, his stuff is usually good. 

I am assuming that finance is not his area of expertise. He checked with Frank Conway and Karl Deeter and he must have misunderstood them. 

I assume that the artice was checked by someone else or referred to one of their financial journalists. It's odd that they did not pick this up. 

Brendan


----------



## huskerdu

Brendan Burgess said:


> To be fair to Conor Pope, his stuff is usually good.
> 
> I am assuming that finance is not his area of expertise. He checked with Frank Conway and Karl Deeter and he must have misunderstood them.
> 
> I assume that the artice was checked by someone else or referred to one of their financial journalists. It's odd that they did not pick this up.
> 
> Brendan



Sweeping assumption there Brendan. 
You are assuming that newspapers do adequate fact checking. I have never seen any evidence of this.


----------



## cork_south

Mixed messages on paying mortgages fortnightly



CONOR POPE, Consumer Affairs Correspondent
MANY MORTGAGE holders have been told by their banks that they cannot start paying their loans fortnightly rather than monthly because internal systems did not allow it.
This is despite the fact that banks have assured this newspaper that such switching was possible.
By paying a mortgage fortnightly instead of monthly, more than €50,000 can be knocked off a €300,000 mortgage over the course of a 30-year term.
A report in this newspaper’s Pricewatch section yesterday incorrectly stated these savings would come at no additional immediate cost to the mortgage holder.
The savings outlined only accrue because a person pays 26 fortnightly payments as opposed to 12 monthly ones, effectively equalling an extra month’s payment each year which comes off the capital and reduces the term of the mortgage.
While some savings can be made by simply splitting payments from once a month to twice a month, they are comparatively small as the mortgage holder is not paying off the capital any faster.
After the article appeared, some bank call centres were said to have been inundated with calls from mortgage holders with many callers being told the banks had no facility to cater for anything other than monthly repayments.
Some callers to Ulster Bank were told that the bank would only accept payments on a monthly basis but when contacted by this newspaper yesterday morning, a spokeswoman repeated what we had been told last week and stressed that the bank would facilitate more frequent payments.
She said this message was being communicated to all staff.
Several readers said they had called the AIB and were told it was not possible to pay once a fortnight but again, when contacted by this newspaper, the bank spokesman said it would facilitate more regular payments.
Callers to Permanent TSB meanwhile said they too had been told that it was not technically possible to switch to fortnightly payments, contrary to what a spokesman told The Irish Times last week.
When contacted again yesterday afternoon, a spokesman apologised for providing the paper with inaccurate information.
“Bar exceptional circumstances, Permanent TSB mortgage repayments must be by direct debit which operate once a month and which may vary if interest rates change,” he said.
He said the bank “cannot generally allow customers to replace the agreed monthly direct debit by one or two standing orders per month”.
The EBS, meanwhile, was telling customers they could make fortnightly payments by standing order but warned that as standing orders were not controlled by it, account holders would have to make any adjustments if interest rates went up or down.
For its part, Bank of Ireland said its customers could pay their mortgages on a fortnightly basis. “If a customer wishes to do this, they must send a request in writing to the bank, signed by all parties,” a spokeswoman said.


----------



## DerKaiser

DrMoriarty said:


> But most people's mortgage repayment probably comes out of a current account earning almost zero interest (as Brendan said above).
> 
> I agree that the article overeggs the potential saving and is misleading, but I'm quite happy to pay my NIB tracker in twice-monthly (not fortnightly) payments. The first payment comes out a day or two after I get paid, the second a few days after all my DDs and my credit card. There's no extra "hassle" involved, and it saves me a few quid. It certainly beats watching my balance and moving funds from an interest-earning account into my current account only as needed, which is what you seem (?) to be suggesting as the alternative.


 
It's absolutely fine if you have an automated twice monthly payment already, I just think the article will lead to a lot of misled people causing themselves and their banks administrative hassle for very little gain


----------



## thedarkone

cork_south said:


> Mixed messages on paying mortgages fortnightly



A mealy mouthed response to a flawed article, focussing on a side issue - that banks won't facilitate something that has no saving - rather than the substantive issue - the article was wrong and misleading, there is no saving.


----------



## orka

It's a bit weasly to gloss over the inaccuracies in a poor article by trying to divert attention to the nasty banks not facilitating customers... 

Switching to fortnightly is fine for someone paid fortnightly but it will be very messy for someone paid monthly as the payment dates will move from month to month and you will have some months (2 per year) where 3 fortnights worth of payments (ie pretty much 1.5 times the monthly mortgage amount) will be deducted which I think most people will be unprepared for.  And if someone paid monthly has enough to pay 3 fortnights worth in one month, they should pay the whole lot the day they get paid - not let it sit there waiting for the deductions 2 and 4 weeks later.  What a mess.


----------



## anotherdub

thedarkone said:


> A mealy mouthed response to a flawed article, focussing on a side issue - that banks won't facilitate something that has no saving - rather than the substantive issue - the article was wrong and misleading, there is no saving.



I fully agree. He goes for the banks because everyone is angry with the banks. Surprised and disappointed he didn't clarify yesterday's very misleading article. 
Would he not talk to his friends Frank Conway and Karl Deeter and present a clear table comparing the total costs/savings of monthly payments, twice monthly payments, and biweekly payments?
And while he's at it - paying off over 15, 20, 25, 30 years.

A couple of small tables wouldn't fill pages of newsprint (as he wants) but it would help clear up some of the mess he has caused. I can only imagine the calls banks and brokers have had yesterday and today. Who is going to believe them if they say the saving is less than €500 in today's money compared with his headline figure of €54,000?


----------



## aaa1

Conor Pope was on the Ray D'Arcy Show this morning apologising and explaining the error. In fairness to the guy, he made a mistake and it's just unfortunate that his mistake is read by tens of thousands of people and then heard by thousands more on the radio


----------



## Protocol

orka said:


> Switching to fortnightly is fine for someone paid fortnightly but it will be very messy for someone paid monthly as the payment dates will move from month to month and you will have some months (2 per year) where 3 fortnights worth of payments (ie pretty much 1.5 times the monthly mortgage amount) will be deducted which I think most people will be unprepared for. And if someone paid monthly has enough to pay 3 fortnights worth in one month, they should pay the whole lot the day they get paid - not let it sit there waiting for the deductions 2 and 4 weeks later. What a mess.


 
I am paid monthly.

I pay my mortgage every two weeks, 26 repayments pa.

I chose this so as to repay the loan quicker and pay less interest. NIB offer the facility, no problem.

Yes, correct, you have to watch out for the timing of the three payments in two months.  I plan ahead for that.


----------



## orka

Protocol said:


> I am paid monthly.
> 
> I pay my mortgage every two weeks, 26 repayments pa.
> 
> I chose this so as to repay the loan quicker and pay less interest. NIB offer the facility, no problem.
> 
> Yes, correct, you have to watch out for the timing of the three payments in two months. I plan ahead for that.


You would save more money by paying monthly the day after you get paid and, twice a year (or whenever you've got the money planned and handy), paying the extra 2 payments worth - also the day you get paid.  NIB's online banking is excellent making it very easy to transfer the extra payments from current account to mortgage.


----------



## matc66

Conor Pope has posted a reply on his blog pricewatch. I haven't read it yet but here it is.
[broken link removed]


----------



## matc66

From above blog post.
"But, this post is not about the banks. It is about my mistake. Again, I am sorry. And mortified."


----------



## 26cb

+1 to the NIB eletronic banking....was able to transfer regular extra payments to mortgage without any problem. Also as the interest rate fell I left my regular repayments at the original amount. Was shocked at the effect that had....shaved years off.


----------



## Ardent

Well, that clears that up then. Thanks to all who have contributed to this thread and clarified the matter!


----------



## TheJackal

I've known about this for a while.

Makes perfect sense to make 26 fortnightly payments a year (so 13 months worth), esp. if paid fortnightly (which I am).

Yes, you are overpaying by 1 monthly payment a year but if you always paid it this way you wouldn't notice the overpayments.

So if your monthly mortage would be 1,000 a month, why not pay 500 every two weeks, for 23 weeks in the year. 
You will have overpaid 1,000 by year-end. So your mortgage is reduced by an extra 1,000 plus the interest saving.


----------



## Brendan Burgess

The Jackal

I am concerned that your post might confuse people. 

The original article mistakenly suggested that if you pay the same amount of money each month, but part of it two weeks early, you will save thousands. 

You are suggesting something different. If you increase your repayments, you will pay off your loan quicker. It does not matter if you do it every two weeks or if you just pay off a lump sum time when it suits you.

Brendan


----------



## DerKaiser

aaa1 said:


> Conor Pope was on the Ray D'Arcy Show this morning apologising and explaining the error. In fairness to the guy, he made a mistake and it's just unfortunate that his mistake is read by tens of thousands of people and then heard by thousands more on the radio


 
I think what's even more interesting is that it highlights people's general lack of understanding of how interest works. I see it constantly on these pages where people overcomplicate how interest works and get tie themselves up in knots.

Just as a test, say you are on a tracker that is 3% lower than your friend's variable rate mortgage. If you both have a €300k mortgage you'll be 3% of €300k or €9k better off over this year alone. Simple.

If you are both repaying this over 20 years, your repayments will only be €5k lower but you'll also have paid €4k more off the capital.

How many people will happily accept that you are €9k better off over a single year? How many more will say you are only €5k better off? How many more again will tie themselves up in knots trying to solve a problem they've made unnecessarily complicated?


----------



## BazFitz

DerKaiser said:


> I think what's even more interesting is that it highlights people's general lack of understanding of how interest works. I see it constantly on these pages where people overcomplicate how interest works and get tie themselves up in knots.
> 
> Just as a test, say you are on a tracker that is 3% lower than your friend's variable rate mortgage. If you both have a €300k mortgage you'll be 3% of €300k or €9k better off over this year alone. Simple.
> 
> If you are both repaying this over 20 years, your repayments will only be €5k lower but you'll also have paid €4k more off the capital.
> 
> How many people will happily accept that you are €9k better off over a single year? How many more will say you are only €5k better off? How many more again will tie themselves up in knots trying to solve a problem they've made unnecessarily complicated?


 
It won't be 3% of €300,000 though.


----------



## MortgageGuy

*we got it wrong*

I didn't check figures before making comment, that was an error on my part, details here http://www.mortgagebrokers.ie/blog/...ying-off-your-mortgage-early-we-got-it-wrong/

karl deeter


----------



## Brendan Burgess

BazFitz said:


> It won't be 3% of €300,000 though.



Why not? 

It will be a very small bit less as some capital will be paid off during the year.


----------



## BazFitz

Brendan Burgess said:


> Why not?
> 
> It will be a very small bit less as some capital will be paid off during the year.


 
That's all I meant - That the interest charge for the year wouldn't be exactly 3% of €300,000.


----------



## MarySmyth

Update on Conor's post

[broken link removed]


> *[broken link removed]*
> 
> April 5, 2011 @ 12:38 pm |  by Conor Pope
> I am constantly trotting out the maxim that if something seems too  good to be true then it is too good to be true. Well, I should have paid  more attention to it when writing the article on how to cut the cost of  your mortgage which appeared in The Irish Times yesterday. In that  article I said that by paying a mortgage twice a month instead of once a  month, more than €50,000 could be be knocked off a €300,000 mortgage  over the course of a 30-year term. I said the savings would come at no  additional or immediate cost to the mortgage holder.
> This was wrong.


----------



## TheJackal

Brendan Burgess said:


> The Jackal
> 
> I am concerned that your post might confuse people.
> 
> The original article mistakenly suggested that if you pay the same amount of money each month, but part of it two weeks early, you will save thousands.


 
Point taken. I hope this has been clarified now for others.



> You are suggesting something different. If you increase your repayments, you will pay off your loan quicker. It does not matter if you do it every two weeks or if you just pay off a lump sum time when it suits you.
> 
> Brendan


 
Anyone good a calculators? I'm wondering which saves more money - over paying via 26 fortnighly payments (so 1 month extra in a year) vs paying an additional 1 month lump sum at year-end.


----------



## michaelm

TheJackal said:


> Anyone good a calculators? I'm wondering which saves more money - over paying via 26 fortnighly payments (so 1 month extra in a year) vs paying an additional 1 month lump sum at year-end.


You don't really need a calculator.  The extra month should be better if you pay that month in the first half of the year.  Either way the difference won't be huge.  I'd have thought it would all be simpler just to increase your regular payment by 8.5% (unless maybe you're on a really keen Tracker and have the extra cash on a good deposit rate).


----------



## TheJackal

I currently don't have a mortgage. When I do get one in 3/4 years interest rates will be a lot higher than now.

I'm keen of the idea of fortnightly payments because if you do this from the very start, you'd never have missed that extra month payment you make over the course of a year.

I get paid fortnightly so by synchronising it with my payday I'd always know what I've left over for the next two weeks until my next payday/mortgage repayment.


----------



## NorfBank

TheJackal said:


> I'm keen of the idea of fortnightly payments because if you do this from the very start, you'd never have missed that extra month payment you make over the course of a year.



Or you could just structure your mortgage over a shorter term from the beginning and pay it over 12 months.


----------



## orka

NorfBank said:


> Or you could just structure your mortgage over a shorter term from the beginning and pay it over 12 months.


That wouldn't give you the flexibility to revert to lower payments if your circumstances changed. If you take a 30 year term and decide to pay enough each month to pay it off over 20 years, you can always revert (whenever you want) to the lower 30 year repayment level without being put through the wringer by your bank.


----------



## TheJackal

NorfBank said:


> Or you could just structure your mortgage over a shorter term from the beginning and pay it over 12 months.


 
Granted. But paying over a shorter term from the start could potentially increase the monthly/fortnightly payments to too high a level to be able to handle.


----------



## NorfBank

I took it from the fact that you wouldn't miss an extra months payment that your repayments would not be a high % of your net disposable income so future interest rate increases would be accounted for. 

Sorry about that TJ.


----------



## NorfBank

orka said:


> That wouldn't give you the flexibility to revert to lower payments if your circumstances changed. If you take a 30 year term and decide to pay enough each month to pay it off over 20 years, you can always revert (whenever you want) to the lower 30 year repayment level without being put through the wringer by your bank.



You would be surprised how focussed a person can get when they reduce the term from the very start. 

It's great having the intention of paying a 30 year mortgage over 20 years through regularly overpaying but in my experience this rarely happens. 

People get used to paying the original monthly sum only.


----------



## Complainer

Yorky said:


> NIB apparently in process of offering fortnightly repayments


I've been doing fortnightly repayments to NIB for more than a decade now.


----------



## Yakuza

There is another way to pay off your mortgage earlier; increase your payments by a small percentage each year (compounded).

To cite the example in the original article (300k, 30 years, 5%), increasing your payments by 3% a year will knock more than 10 years off your original term.  (Admittedly, you end up paying 1 3/4 times the original payment by the time it's paid off, but if you get annual salary increments (perhaps not a realistic expectation these days), the extra increase wouldn't be too hard to bear).

I've modelled it here (rightmost set of data) : [broken link removed] (the other data was something I put together for the original article, to show that paying twice-monthly made almost no difference)

It is a simple model, and ignores variable interest rate changes (and the attendant increases in payments).


----------



## Complainer

Yorky said:


> You may be making fortnightly payments to the mortgage feeder account but a payment is only credited to the mortgage account monthly.


Give me some credit (no pun intended). I can see my mortgage account via online banking. The payments are credited instantly. NIB made a big marketing fuss about offering flexible repayments, including fortnightly and lump sums in the late 90s.

They have been doing this for years.


----------



## SISSOKO

Very interesting article and thread , just wondering do any of the banks
have an online facility to pay extra payments off your capital.

I know i can view my outstanding mortgage amount online but if i had extra cash in my current account it would be nice to be able to take
it off the mortgage balance if and when possible.


----------



## DerKaiser

SISSOKO said:


> Very interesting article and thread , just wondering do any of the banks
> have an online facility to pay extra payments off your capital.
> 
> I know i can view my outstanding mortgage amount online but if i had extra cash in my current account it would be nice to be able to take
> it off the mortgage balance if and when possible.


 
It might seem very lazy, but I completely agree with you.

Somehow the facility to give to charity or pay a parking fine online makes me more likely to do it.

It would be the same with the mortgage.  If I could transfer it out of my current account and see it immediatly reduce my mortgage balance I'd be less likely to put it off. I recently paid off a chunk, and I think it's needless hassle to have to write a cheque with instruction, physically post it to the mortgage division and then check up that they've carried out your instruction correctly.


----------



## Complainer

Yorky said:


> You seem to be confusing additional capital repayments which can be made at any time by EFT with the regular monthly repayment.


I'm not confusing anything. I moved from being paid monthly to fortnightly in 2000. At that time, I contact my branch, NIB College Green, and arranged to pay my mortgage fortnightly instead of monthly. They recalculated my mortgage, and there was a small reduction in the overall term arising from the slightly earlier payments. I've been paying fortnightly ever since. The only credit transactions appearing on my mortgage account are the fortnightly payments, which are dated with the dates that they leave my current account.


----------



## millieforbes

derkaiser said:


> it might seem very lazy, but i completely agree with you.
> 
> Somehow the facility to give to charity or pay a parking fine online makes me more likely to do it.
> 
> It would be the same with the mortgage. If i could transfer it out of my current account and see it immediatly reduce my mortgage balance i'd be less likely to put it off. I recently paid off a chunk, and i think it's needless hassle to have to write a cheque with instruction, physically post it to the mortgage division and then check up that they've carried out your instruction correctly.


 

+1

I manage all my accounts online - I typically transfer "leftovers" at the end of the month to savings accounts or make early payments but would really like an easy way to pay these extra small amounts off the mortgage


----------



## orka

SISSOKO said:


> Very interesting article and thread , just wondering do any of the banks
> have an online facility to pay extra payments off your capital.
> 
> I know i can view my outstanding mortgage amount online but if i had extra cash in my current account it would be nice to be able to take
> it off the mortgage balance if and when possible.


In case you haven't picked up from Complainer's posts, NIB let you do this - their online banking is very flexible.


----------

