Paying your monthly mortgage payment in two halves twice a month saves money?

uberrich

I've just read about an idea on TheSimpleDollar website that reckons you can save money on your mortgage just by splitting the payments. (I'd post the link to the article, but I'm not allowed to because I'm a newbie! If you want to see it, just Google "Simple Dollar mortgage half payments" - it's the first result returned.)

Put simply, they advocate splitting your monthly mortgage payment into two halves and paying twice a month, say one half on the 1st and the second half on the 15th. They reckon it saves money because you cut down on the interest, but I'd have thought if you pay the whole lot at the beginning of the month you save the interest on the remaining second half for the next half month. Does that make sense? Anyway, I'd be interested to know your views if you've got time to read the article. Also, it's a US based site, so would the idea work with a UK lender?

SimbaSimon

uberrich wrote: »

I've just read about an idea on TheSimpleDollar website that reckons you can save money on your mortgage just by splitting the payments. (I'd post the link to the article, but I'm not allowed to because I'm a newbie! If you want to see it, just Google "Simple Dollar mortgage half payments" - it's the first result returned.)

Put simply, they advocate splitting your monthly mortgage payment into two halves and paying twice a month, say one half on the 1st and the second half on the 15th. They reckon it saves money because you cut down on the interest, but I'd have thought if you pay the whole lot at the beginning of the month you save the interest on the remaining second half for the next half month. Does that make sense? Anyway, I'd be interested to know your views if you've got time to read the article. Also, it's a US based site, so would the idea work with a UK lender?

I think its a crazy sounding idea. If you pay it all on the 1st of the month you'd pay less interest than paying it on the 30th of the month, because you've paid that little bit more off. If you paid half on the 1st and half on the 15th you'd pay about half the interest you would if you paid it all on the 30th but you'd still be paying more then if you paid it all on the 1st. The difference however is only a few pounds saved, but it all adds up.

Edit - Presuming the interest is calculated daily this applies. If you interest is calculated monthly than perhaps it would save money to pay it towards the end of the month and keep it in your savings a little bit longer.

uberrich

Well yes, that's exactly what I thought, but figured maybe I was missing something. In the article they do talk a lot about being paid bi-weekly, so perhaps this is where it's beneficial.

Also, are mortgage payments always paid in arrears? If so, and you do pay in two halves, is the first half actually half a month early, meaning you're saving the interest on those two weeks or so?

Hmm, I think I'll just stick with what I'm doing!

getmore4less

This comes up regularly

Does not work,

Bi weekly is just overpaying.

Pay the money as soon as you get paid(you can't pay sooner) paying later just costs more.

dimbo61

This is an american website
say no more !!!!

SmileyG_2

Shame on you MFWs!

I pay my mortgage on the 1st and the 15th of the month.

The payment on the 1st is what the Nationwide wants
The payment on the 15th is my overpayment.

The 15th is a good day for me as all my DDs and SOs are paid by then. It gives me the option of paying the overpayment or not, given that I get paid on the 23rd of every month; by then I have a pretty good idea of what I need to have in the a/c to get to pay day.

Whilst I agree it may not save me a whole pot of pennies in interest, it's still a nice feeling to pay something in the middle of the month that in the long term will save me pounds.

My motto: If it works for you, just do it!

SmileyG

SimbaSimon

SmileyG wrote: »

Shame on you MFWs!

I pay my mortgage on the 1st and the 15th of the month.

The payment on the 1st is what the Nationwide wants
The payment on the 15th is my overpayment.

The 15th is a good day for me as all my DDs and SOs are paid by then. It gives me the option of paying the overpayment or not, given that I get paid on the 23rd of every month; by then I have a pretty good idea of what I need to have in the a/c to get to pay day.

Whilst I agree it may not save me a whole pot of pennies in interest, it's still a nice feeling to pay something in the middle of the month that in the long term will save me pounds.

My motto: If it works for you, just do it!

SmileyG

I'm not saying its a bad idea to overpay some of your mortgage half way through the month but if you have a choice it should be paid ASAP as in those 15 days you've paid a bit more interest than you could have.

cha97michelle

I think they are using the idea that if you are paid biweekly and you pay a mortgage payment once a fortnight then over a year you pay off 26 payments (ie 13 months worth) so in effect you are paying an extra month off. I saw the idea in 'The Tightwad Gazette'. In this example, you are clearly going to get a benefit.

miss_undastood

US companies pay wages bi-weekly too, seems to me a similar idea to an offset-type of mortgage where the payments reduce your capital as soon as you have money in your account.

Likewise if you get paid weekly you should probably look to pay something towards your mortgage weekly, but if you get paid monthly then pay monthly and top up whenever you can.

Whatever works for you...

Jonbvn

It really only works if you get paid bi-weekly. This is quite common in the US & Oz.

AFAIK, no lender allows you to make the minimum required payment twice a month. Of course, making overpayments is completely separate from the regular payment.

Jonbvn

SmileyG wrote: »

Shame on you MFWs!

I pay my mortgage on the 1st and the 15th of the month.

The payment on the 1st is what the Nationwide wants
The payment on the 15th is my overpayment.

We are not talking about overpayments!!! We are talking about splitting the regular monthly payment into 2 bi-weekly payments.