Fortnightly Mortgage Payments

99rb99

Hi,

Can anyone help? How do I work out how much money I would save over the year by paying my mortgage either fortnightly, or weekly, rather than monthly?

My mortgage is with the Nationwide, and interest is accrued daily.

Mortgage Value: £78000
Interest Rate: 4.68%
Term Remaining: 17yrs

How much would I save in interest with weekly, or bi-weekly payments over a year?

PS I know the interest rate may seem high to some, but that was due to my own circumstances at the time (anyway, I am out of the fixed rate period in 1.5 years, so I can get a better deal then).

Thanks.

getmore4less

How do you get paid?

TrickyDicky101

A rather small amount I'm afraid.

I presume your current mortgage payments are approximately £555 monthly or thereabouts? So you would aim to still pay the same total over the course of the month but instead of say paying all in one go at the end of the month, you would split it up into 4 equal payments (say) and pay first amount at end of week 1, 2nd end of week 2, 3rd end of week 3, 4th on your usual repayment date at the end of the month?

Well, assuming it is £555 per month and therefore approximately £139 per week (assuming a 4 week month) then the interest saved on the week 1 payment is:

£139 * 4.68% * 21 days / 365
= £0.37

Following same logic, 2nd week saves £0.25, 3rd week saves £0.12; 4th week doesn't save anything (normal repayment date).

So, you save a total of £0.74 each month. Multiply by 12 you get an annual saving of £8.88.

The above is simplified and differing day counts will change the figures slightly but not to any significant degree.

getmore4less

You can only pay when you have the money.

If you get paid monthly then paying the mortgage monthly(when you get paid) has the lower interest.

Using multiple payments only work if the income comes the same way.

If you get paid monthly and spread the payments it costs more.

coopso24

I thought the point of paying fortnightly was that you end up making an extra payment over the course of the year,

52 weeks = 26 fortnightly payments,
if you split down your 12 monthly payments and paid half at the start of the month and half at the end it works out at 24 twice monthly payments

if your monthly mortgage payment is £500 x 12 months = £6000
if instead you paid £250 every 2 weeks ? £250 x 26 = £6500

Thus youre making an extra whole months payment per year

Tom99

coopso24 wrote: »

Thus youre making an extra whole months payment per year

Yes you might have paid an extra £500 but as above you have only saved £9 in interest.

getmore4less

Bi weekly came from the usa where that is often the pay cycle .

Payments bi weekly when you get paid monthly is inefficient way to make the overpayment.

99rb99

That all makes sense now, we get paid monthly, so I see what you mean about the fortnightly payments being a worse way to pay for us personally. So rather than swapping to fortnightly, it is easier if we just overpay a certain amount whenever we are able. We overpay each month anyway, so I was looking into different ways to try to pay it off quicker, which is why fortnightly payments came to mind.

I also thought if I could try to reduce my household bills, then I'll pay the monthly saving straight off my mortgage each month, then I won't notice the amount, as it is money I never had.

I need to think of other ways to help pay it off, with money I never had, other than the household bills idea. Any thoughts?

AnotherJoe

It’s probably more financially efficient to increase your pension payments with spare money rather than go all out to pay off a mortgage especially when in a couple of years the mortgage rate you’ll be paying will likely be half what it is now.

Plus as inflation rises, the worse it is to pay off your mortage early because the later you pay off, the more you are paying with devalued money. The pound you pay off in 20 years time is probably worth half the one you pay off now.

If you are like most people you'll be focusing on the mortgage because its a big debt you can see, whereas your pension is in effect nothing more than a big reverse debt you dont see. So you think "I'll pay my mortgage off fast then i can save for a pension" whereas thats the wrong way round, as it means you miss out on years of compound growth. Most likely your pension contributions will grow at double or triple the rate of your mortgage.

This is even before you get into factors such as losing out on the tax advantages, especially if you are a high rate taxpayer.

somethingcorporate

Have you looked at what ERCs you would pay if you left your current deal?

Mortgage rates are much better and you could save over the next 18 months.

99rb99

AnotherJoe wrote: »

It’s probably more financially efficient to increase your pension payments with spare money rather than go all out to pay off a mortgage especially when in a couple of years the mortgage rate you’ll be paying will likely be half what it is now.

Plus as inflation rises, the worse it is to pay off your mortage early because the later you pay off, the more you are paying with devalued money. The pound you pay off in 20 years time is probably worth half the one you pay off now.

If you are like most people you'll be focusing on the mortgage because its a big debt you can see, whereas your pension is in effect nothing more than a big reverse debt you dont see. So you think "I'll pay my mortgage off fast then i can save for a pension" whereas thats the wrong way round, as it means you miss out on years of compound growth. Most likely your pension contributions will grow at double or triple the rate of your mortgage.

This is even before you get into factors such as losing out on the tax advantages, especially if you are a high rate taxpayer.

Yes, I know, if I were younger then yes, but I am 46, and my pension total is rubbish, and I am self employed so it's not like I have an employer to help-out on that front, but I've got other back-up plans in order to replace a pension, so I 'should' be ok on that front, so now I just need to reduce the mortgage quicker, to try to get debt free by my mid 50's.