Bi-weekly Payments to reduce mortgage?

ducklet_2

Found this link explaining more about what a bi-monthly payment is and how it reduces the mortgage:

http://mortgage-x.com/library/bimonthly.htm

ducklet_2

Spoke to the halifax who can set up standing orders to take the mortgage payments out on a weekly basis eg one payment on the 1st (when the original monthly payment came out) and one on the 15th! Hopefully this does make a substantial difference

bootman

I just dont get it.

Surely if the interest is calculated daily then paying you monthly payment as 1 on the first of the month is better?

Joe_Bloggs

The link ducklet mentions, states that bi-monthly paymment will reduce the term by 1 month in a total of 30 years. That is paying half the monthly payment twice a month. This is their terminology and not mine. Bi-weekly, paying half the monthy payment every two weeks is very similar to making overpayments and making an extra monthly payment.

For Example a £100,000 mortgage at 5% interest over a period of 25 years.
Conventional Repayment gives.

300 payments of 584.59 each => £175,377. Annual cost £7015.08

The bi-weekly scheme is 26 payments of 584.59/2 = 292.30
This works out to be
558 payments of 292.3 each => £163,203.12*. Annual cost £7599.80
The this is a term reduction of 3 and a half years. Interest saved £12277!

Is this an amazing phenomenon ? The answer is no. Since in the second bi-weekly case an extra 584.72 is peing paid back per year or 48.72 a month. By spreading this extra payment over the year in a conventional mortgage we get this.

258 payments of £633.32 each => £163,382.22* Annual cost 7599.72
The terms of the two mortgage become almost identical. There bi-weekly is £185 pounds cheaper over the 21.5 year term. That is 71p a month cheaper when you compare like with like.
J_B.

* I subtituted total cost as the very last payment was not a full mortgage payment but a partial payment.

mountainofdebt

I changed jobs in Nvovember and as I now get paid weekly, I pay 1/4 of my mortgage each week.

Not sure if it will make a difference but I am only doing it so that I know my mortgage is covered each month.

Joe_Bloggs

@mountainofdebt
If you pay 1/4 of your equivalent 'monthly' mortgage repayment each week then you in effect pay the equivalent of 13 monthly payments per year. See it as 52 * 1/4 = 13. Thus the benefits of 'bi-weekly' or overpaying by a months payment are yours. The only thing wrong with the whole scheme is the misleading name and the lack of another name to describe it.
J_B.