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

Update on Conor's post

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[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.
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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.
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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
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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.
 
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.
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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).
 
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.
 
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.
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Or you could just structure your mortgage over a shorter term from the beginning and pay it over 12 months.
 
NorfBank said:
Or you could just structure your mortgage over a shorter term from the beginning and pay it over 12 months.
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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.
 
NorfBank said:
Or you could just structure your mortgage over a shorter term from the beginning and pay it over 12 months.
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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.
 
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.
 
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.
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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.
 
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).
 
Yorky said:
You may be making fortnightly payments to the mortgage feeder account but a payment is only credited to the mortgage account monthly.
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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.
 
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.
 
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.
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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.
 
Yorky said:
You seem to be confusing additional capital repayments which can be made at any time by EFT with the regular monthly repayment.
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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.
 
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.
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+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
 
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.
Click to expand...
In case you haven't picked up from Complainer's posts, NIB let you do this - their online banking is very flexible.
 
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