Paying mortgage weekly or fortnightly.. Is this better?

annoyedcustomer8787

Hi Everyone,

Someone told be the other day that they pay their mortgage fortnightly instead of monthly because it reduces the interest (only slightly but every penny in my pocket is better than someone else's!) accumulated?

So my mortgage is currently:
Our outstanding balance is £215,412.66 with 29 yrs and 9 months left (30 yrs in total, total mortage was for £216,710)
APR is 2.89 % fixed for 5 yrs, then goes to 3.99%.

We currently pay £900.85 on the 25th of every month.

My questions are:
1) if I split this payment, paying half on the 1st Friday of every month and half on the 3rd Friday of every month, will this reduce the interest accumulated? Would it benefit me at all? And I can't find a calculator to work this out so if someone could tell me by how much (if it does) that would be really helpful.

2) If I just pay my £900.85 on the 1st of every month would this be in fact better that than option 1? And by how much? Have I been accumulating interest unnecessarily by choosing to have my DD taken out on the 25th of every month?

TIA

jayII

Option 2 is best.

Interest on £900.85 for 24 days at 2.89% is approx £1.70. (900.85 x 2.89 /100 / 365 x 24)

The £1.70-ish will add up over time and accumulate it's own interest. That can be calculated via a compound interest calculator, but it won't be a huge amount.

bossymoo

Yes, if it's daily interest, then paying on the first of the month is beneficial.

Are they all daily interest these days? We had the option but that was years ago...

getmore4less

For daily interest paying on any particular day is best is nonsense.

Pay as soon as you have the money.

This weekly/biweekly comes from the USA where that pay cycle is more common.

jayII

Good point bossymoo, I forgot that some mortgages aren't daily interest.

If it's not daily, it will probably make no difference when you pay.

We've just taken a new mortgage and all the ones we looked at were daily interest, so I assumed that the majority are daily.

Nebulous2

Paying it as early as you can is beneficial. Paying on the 1st instead of the 25th works if you are pulling the payment forward by 24 days - not.if you intend moving it back by a week!

Thrugelmir

To make a real difference overpay the mortgage by whatever you can afford. I'm sure that you'll easily identify £10 or £20 that you fritter away every month that could be directed into the mortgage instead. 30 years is a long term. Shortening this will save you thousands in interest over the longer term.

By way of comparison and assuming that the interest rates remain static for the entire term of the mortgage. By having a 30 year as opposed to 25 year term. You will be paying an additional £18k of interest. If interest rates were to rise. The differential would be even greater.