Pay your mortgage weekly???

chriss1979

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.

Also by them doing this instead of making 12 monthly payments they make 26 fortnightly payments (ie 13 months worth)

FFP

This is exactly what I do on my Canadian mortgage.

Pay every week and make 52 payments (13 months worth) every year instead of 12 monthly.

Can't remember the exact figures, but it was significantly less interest over the term.

Xbigman

So you make 52 payments of a quarter of a month? Isn't this then just a way of overpaying that is psycologically less painfull than overpaying monthly?
Regards



X

Joe_Bloggs

£100K @5% over 300 months (25 years) is £584.53. Total interest would be £75,337.
With Bi weekly payments this works out at £292.30 every two weeks. Over the term the biweekly saves 3.5 years or £12,174 in interest.
Paying 1/12 extra per month (£633.24) also reduces the term by 3.5 years but saves £11,992 in interest.
Thus the two payment schemes can easily acheive very similar results.

The trouble with monthly bills are the occurence of weekends where you have to move money earlier to avoid the weekend shutdown of the money transfer systems . It have had some direct debits occur 4 days early (non mortgage). Some times my mortgage payment is taken 3 days late depending upon when the weekend is with repect to the payment date.
Bank holidays make this effect worse.
J_B.
Calculations from http://www.hsh.com/hbcalc.html

Xbigman

Huh.

A mortgage of 584.53 per month is 7014.36 per year. Paid bi weekly it is thus 269.78.
What you are suggesting is paying half a months mortgage (292.30) every two weeks, so you pay 13 months per year.
This is simply a way of overpaying. There is no actual financial advantage to paying bi weekly in its own right.

FTR. I get paid 4 weekly so my budget figures are all worked out 4 weekly. I actually pay an amount 1/13th higher twelve times a year (or is that 1/12th higher 12 times a year - you know what I mean :cool: ). I often quote my mortgage payment as the 4 weekly figure and everyone thinks I'm clever because its so cheap. I rarely correct them
Regards



X

FFP

Xbigman wrote:

So you make 52 payments of a quarter of a month? Isn't this then just a way of overpaying that is psycologically less painfull than overpaying monthly?
Regards



X

Not quite but kind of, yes. I have a weekly payment of $515. Forget about monthly payments / percentage of monthly payment per week. I simply pay $515 a week.

Now it may be (in fact it will be !!) that between paychecks I may make 5 payments, or 4 payments, depending on how many mondays there are that month.

HSBC Canada has a useful calculator. You can switch between monthly and accelerated weekly on it and it illustrates the point well.

For me, the savings would be $30,000 over the term (25 years)

Here's how HSBC explain it

Accelerated weekly and accelerated bi-weekly payment options are calculated by taking a monthly payment schedule and assuming only four weeks in a month. This calculator calculates an accelerated weekly payment, for example, by taking your normal monthly payment and dividing it by four. Since you pay 52 weekly payments, by the end of a year you have paid the equivalent of one extra monthly payment. This additional amount accelerates your loan payoff by going directly against your loan's principal. The effect can save you thousands in interest and take years off of your mortgage.
The accelerated bi-weekly payment is calculated by dividing your monthly payment by two. You then make 26 bi-weekly payments. Just like the accelerated weekly payments you are in effect paying an additional monthly payment per year.