Pay your mortgage weekly???

tanmu

I have heard that you can actually pay your mortgage weekly, thus saving yourself lots of interest. Is this a well kept secret or a load of rubbish?

Dumbledore55

I think that only works if the interest is calculated daily. You need to check your mortgage about that. Some put the interest on annually and then you're better saving up and paying just before they do that.

Woby_Tide

surely paying off your mortgage at the first possible moment i.e. payday is the most efficient method to reduce interest. Unless you can earn more interest on the cash than you pay as a mortgage rate where paying the mortgage at the last possible moment i.e. end of the month is the most economic solution?

Joe_Bloggs

surely paying off your mortgage at the first possible moment i.e. payday is the most efficient method to reduce interest. Unless you can earn more interest on the cash than you pay as a mortgage rate where paying the mortgage at the last possible moment i.e. end of the month is the most economic solution?

I agree with the first part of the quote. I do not comprehend the last 35 word ,or so sentance.

J_B.

dwight-van-man

As posted above, only works with a daily interest calculation. The other 3 points to check are that, 1) your lender will allow it in the first place, 2) as to change from monthly to weekly would most likely mean changing from a direct debit to a standing order, check there isn't an admin fee for this, for example, £25 to pay by a means other than d/d, and 3) be very wary that your fourth weekly payment doesn't take you into a new month which may show as mortgage arrears if you haven't made the required full monthly payment within that calender month.

Xbigman

IIRC - paying weekly is an option in Australia. It saves 40 - 50 quid a year on 50,000ish mortgages. Although there are savings to be made its actually a bigger pain in the backside than the savings gain you and is not popular.
Regards


X

tanmu

thanks for the clarification! The person who told me about it made it sound like you would save a killing! Oh well.....:o

Joe_Bloggs

There may be still Bi-weekly enthusiasts in the USA. They make half their monthly payments every two weeks. Funny enough they pay off their mortgage quicker. I leave the reason open to further contributors to this forum.
J_B.

jamesd

Woby_tide, some mortgages calculate the total annual interest at the start of the year and divide it by the number of months, so you save no money by paying early. Some do the same thing but monthly, eliminating the gain from paying earlier in the month.

Those that calculate it daily do produce a benefit if you pay as early as possible.

Xbigman

Joe_Bloggs wrote:

There may be still Bi-weekly enthusiasts in the USA. They make half their monthly payments every two weeks. Funny enough they pay off their mortgage quicker. I leave the reason open to further contributors to this forum.
J_B.

If you divide a 25 year mortgage up into equal payments it will take 25 years no matter what frequency you pay.

If you pay any money in advance of the mortgage payment schedule then that figure will reduce. So if your mortgage offers you the option of paying bi weekly then that is priced in.
But does it work out cheaper? If you are paying the interest in arrears it does (which we don't in this country - CMIIAW) but if you aren't then it doesn't.

Can you save money? Yes. You are not paying a months interest in advance, only two weeks. So you get to keep the interest on the money you didn't pay in advance for 2 weeks every month (or you save the interest on the equivelent debts for two weeks every month). This requires either a current account with goof interest paid and monthly salary - or a !!!!!! load of juggling.

As this isn't an option I've heard of in this country anyway (anyone using a pass book mortgage payment will be on annual interest so paying more frequently won't work but paying less frequently will get you arrears charges) and none of us really knows that much about overseas mortgages, this is probably a moot point.

Best option in the UK; daily interest calculation and overpay a bit each month.
If you *can* get a passbook based mortgage, as opposed primarily to direct debit, with daily interest calculation then you should pay as soon as you have the money each week/month/year as there will be a good saving.
Regards



X

HelpWhereIcan

The only lenders that I am aware of where this is a formal mortgage option are the Yorkshire Bank and Clydesdale Bank (part of the same group). In fact Clydesdale may have withdrawn the facility.?

As has already been said, there are advantages and disadvantages, but uptake of this type of facility amongst the public has never been huge.

One other thing to be aware of is that while most lenders will allow you to switch to paying by standing order (to achieve weekly payments), many deals now have a condition that the payments must be made by direct debit to qualify for the deal. I have not known a lender withdraw a deal )as they mainly use it as an arrears collection tool), but I would advise anyone considering this to check the conditions of their mortgage offer for a similar condition.

I suppose one potential way to replicate the affect could be to have a mortgage with an offset current account. You arrange to pay weekly into the current account, with the payment being caimed from the offset current account once a month. This would have to assume that the rate available on the mortgage with offset current account was as competitive as is available elsewhere, and I would suspect that doing it this was would only really benefit those who are paid weekly - and even then the benefit may mainly be a budgeting one.

Hope this helps