Years and £1,000's off Mortgage, no extra cost!

henrid01

Hi, this is my first post, and I apologise if this has already been covered, but I couldn't find it.....

I'm originally from Australia, and the mortgage market seems more mature there in terms of flexibility. I was talking to some people at work about their mortgages the other day, and was shocked to find they didn't know this simple technique so I'd thought I'd share it with everybody here.

Do you want to cut years and thousands of pounds off your mortgage for no extra cost??? I'm guessing yes! Here's all you need to do: Ring your bank and change your payments from monthly to fortnightly (that is, every two weeks). So, If you pay £800 per month, change it to £400 every two weeks. SIMPLE! Of course, if you can, add a little extra to each fortnightly payment to make it even quicker.

Now, you probably won't think it's going to make much difference, and your bank will probably tell you it won't as well! Simple fact is, that for a £200k mortgage making this simple change will cut around 5 years and tens of thousands off your mortgage. I'm not mathematician, but it works because mortgage interest is usually charged daily. There's plenty of calculators you can find on the net to see what a staggering difference this will make to you loan length interest paid. Believe me, I'm mortgage free!! Oh yeah, most of the calculators are from Australia as UK based calculators only accept monthly payment terms.

Ok, there's a few things to consider, but nothing big. Your bank probably won't let you do this if your on an intro rate, or on fixed rate, and it's not going to help if you're on interest payment only.

Anyway, check it out - you'll be very surprised!

Dave.

cheekymonkey20

I thought that you could only make monthly payments to a mortgage in this country.

Makes more sense though... 26 payments of £400 = £10400 insted of 12 payments of £800 = £9600. In effect an extra months payments a year.

For every 12 years of your mortgage you will have paid an extra year.. though on the average 25 year term its only saving 2 years... 23 year term

sdooley

The only tricky thing is you will have some months where you are making three fortnightly payments between being paid.

Otherwise, sounds like a good idea.

TOPAZ_2

Hi
I phoned up Nationwide not too long ago and asked to do this - was happy with making the extra payments in some months - but was told flattly - NO

It is not possible - they will not change the way my Direct Debit works and the only thing I can do is to send them extra payments - they have refused to automate it

I dont know if this applies to all Banks/Building societies - but so far I have had no luck trying to set this up in the UK.

I know it happens quite easily in the US - which is where I had heard about it.

If anyone hears of a UK bank or Building society doing this - I would be interested to hear about it

Topaz

cheekymonkey20

You could probably do it if you paid your mortgage by cash or cheque in the bank.
Best way to do it is x's your mortgage payments by 13 then divide by 12.
Mine would be £663.23 per month x 13 = £8621.99. So id just call the bank to change my DD to £718.50 per month instead.

Kaz2904

I found it very inflexible too.
When I changed my bank account the mortgage company didn't process the direct debit so I had a letter telling me that my mortgage hadn't been paid. I rang them up to see what was going on and was told that they didn't accept the bank telling them to collect money from there, I had to do it all.
I paid by phone then and asked for a new DD form. My B/S is a Welsh one and they sent me out a standing order form and a DD form so I set up a SO. This means I choose how much to pay and they can't change it.
It works for me because I'm on a fixed rate so I know that the amount I need to pay won't change until 2010.
As I also have their details for my SO I was able to set up a one off payment facility from my online banking so any time I fancy making even a small overpayment I just log in and send it off.
I was toying with the idea of moving it forwards by 1 day each month but don't know how I'd mange when it came to paying 2 months in one as would eventually happen.



ETA: To those who aren't sure of how much you'd save, In 2.5 years of paying slightly less than double my usual monthly payment I have knocked off 5 years from my mortgage finish date. Every month I over pay knocks 2 months off the end. I like those figures!

getmore4less

Urban myth.

You have to pay more in the year to make it work.

It is just overpaying,

That is only way to reduce the term of a mortgage.

henrid01

Hi folks,

I don’t really know why I feel the need to respond to all the “it doesn’t work/urban myth” type responses here, but I do! Perhaps it’s because I know this WORKS!

Ok let me start by saying this is NOT just an overpayment nor the same as making a lumpsum payment, but both of these will help to further reduce your loan amount.

Try the following website:

http://www.moneybuddy.com.au/calculators/mortgage-term-calculator

Remember to ignore the $ sign as it’s an Aussie site, just think £ instead as it only calculates on the amount and has NOTHING to do with exchange rates.

Do a monthly calculation – write the figures down, then halve the repayment amount and change the payment frequency to fortnightly and write those figures down. Now, I absolutely guarantee you that there will be a difference and depending on the amount of your loan, and loan period it can be significant…. (I look forward to some apologies too… ha, ha, ha ;-))

Now in terms of banks, I know from experience that Nationwide will allow you to do this, but not by direct debit, you have to set up two standing orders. You might also want to consider the Virgin One account.

At the end of the day, you’ve got nothing to lose by doing this, even if you don’t believe me (and I’m on my 3rd property in 8 years, so I know this works) except time off your loan length and amount.

Dave.

henrid01

OK some quick numbers from the calculator:

Loan amount: 200k
Interest rate: 7%
Repayment per month: 1,300

To pay it off:

Loan Term: 32 years and 8 months
Total Interest Paid: 308, 984 !!!

Same Figures but Fortnightly:

Loan amount: 200k
Interest rate: 7%
Repayment per fortnight: 650

To pay it off:

Loan Term: 25 years and 3 months
Total Interest Paid: 226, 115 !!!

The difference:

You save 7 years 5 months
And 82,869 in interest!!!!!!!


I’m no mathematician, but that looks good to me, and it works because mortgage interest is usually charged daily and it compounds…. (I think…but really, I don’t care as long as it saves me time and money)……

The rest is up to you folks!!

Dave.

xxlaurissaxx

OMG thats mad. I dont have a mortgage but i'll be showing my boyfriend this.

Welshlassie

You would be overpaying though, you would be paying an extra months payment a year effectively.

I've just done a quick calculation if I just paid an extra months payment at the beginning of the year on my mortgage I would knock just under 5 years off my mortgage if I did paying fortnightly I would knock just over 5 years off. The difference being a couple of months. The problem I would have doing this though is I would need to find an extra months payment every year, at the moment I throw what I have as and when I have it. I wouldn't want to be committed to paying it, which by changing the frequency of it I would.

I can see where your coming from, and it might work for some people, but not for me. Good luck in your quest to paying your mortgage though.