Mortgage Repayments

H

healybrn

Guest
Hello,

I was recently told that if you pay your mortgage every 2 weeks rather than monthly, it greatly reduces the overall cost of the mortgage.

Can anyone tell me if this is true? and if the banks are ok with 2 week repayment intervals rather that the standard monthly one?

Thanks
 
actually do you mean pay half the normal monthly repayment every 2 weeks or paying a months repayments every 2 weeks? if latter obviously but if first then not much.
 
I mean pay half the normal monthly repayment every 2 weeks.

When you say its not much of a saving, does this mean it is not worth doing?

Thanks
 
bearishbull said:
not true,not much anyway
Click to expand...
Are you sure about that? In general making repayments as frequently as possible can save significantly on overall interest costs. As long as the lender is calculating interest at least as frequently as the repayments. For example if the lender calculates interest monthly (as I think some still do) then there's no point in making repayments more frequently than monthly. Thankfully many lenders calculate interest daily these days so making repayments more frequently than monthly can yield significant savings. Basically because you are chipping away at the capital more quickly. This is the principle on which current account mortgages work. You can probably estimate the potential savings attributable to making two repayments a month rather than one (where the total repayment in a month is the same) using Karl Jeacle's mortgage calculator. Note that if your normal repayment is €x then you repay 12 x €x in a year but if you pay €x/2 fortnightly then you will pay 26 * €x/2 = 13 x €x so that alone would result in additional interest savings because you are paying more!

Update: Karl Jeacle's calculator supports monthly repayments (by default) and the option of bi-weekly (fortnightly) repayments. On a €250K mortgage over 20 years at 3.5% monthly repayments yield a total interest bill of €98K (in addition to the repayment of the €250K capital borrowed) while fortnightly repayments yield a total interest bill of €84K (a saving of €14K) and a reduction of the effective mortgage term to 18 years. Not to be sneezed at!
healybrn said:
I mean pay half the normal monthly repayment every 2 weeks.

When you say its not much of a saving, does this mean it is not worth doing?

Thanks
Click to expand...
In general accelerated mortgage repayment (through more regular than monthly repayments where your lender calculates interest more frequently than monthly, increased monthly repayments and/or lump sum capital repayments) will always save you (often significant amounts of) money in interest charges that you avoid and reduce the effective term of the mortgage (thus also saving you mortgage protection life assurance premium costs later on). If you have no higher cost debts than your mortgage, don't need the money for anything else and won't end up borrowing at higher than mortgage interest rates once the mortgage is reduced/cleared then you could do a lot worse than use spare money to reduce your mortgage borrowings.
 
Of course it will reduce the mortgage faster.

Ignore clubmans calculation, its too complex.

There are 4.33 weeks in a month ie 52 weeks in a year /12 months so a fortnightly payment should be

(Monthly Payment/4.33)*2 and round up for 'mistakes ' , say to the nearest €100 .

Mortgage disappears way faster and it synchs perfectly with your civil service pay cycle :p

Test the theory here

http://www.jeacle.ie/mortgage/ie
 
2pack said:
Ignore clubmans calculation, its too complex.
Click to expand...
My calculations are not complicated and merely designed to illustrate that paying half the normal monthly repayment fortnightly means that you will pay more in any year. More frequent repayments that add up to more than the normal annual total result in a a double (positive) whammy of reduced interest costs and effective mortgage term.
2Pack said:
Mortgage disappears way faster
Click to expand...
Assuming that you're not stuck with a lender who is still calculating interest monthly or, worse still, annually (not sure if anybody still does this - were INBS the last to persist with annual interest calculations?).
 
You should be able to have your mortgage paid twice monthly by your lender.


I pay my mortgage weekly so I don't see any problem.
 
You must log in or register to reply here.
Back
Top