Paying mortgage weekly

Aspatria

Will paying my mortgage weekly make a significant reduction to interest paid overall? Are there any other advantages to paying weekly?

Newbie_John

Oh, not this again.. 

Whatever youtube/tiktok says - the main difference between paying monthly and weekly is that you compare 4 weeks with 31 days long month. So Apples with Oranges.

The actual difference of paying weekly vs monthly is negligible.

But what you asking for is that a year has 52 weeks - so 52 payments and you comparing it to 4x12months = 48 weeks.
The difference really comes from that extra remaining 4 weeks and equals to a month of overpayment per year - and yes that makes a big difference overall.

Edi81

American influence! In the USA people often still get paid weekly or fortnightly. 

Just pay your mortgage each month, overpay when you can (or put cash into a higher yielding savings account). 

amnblog

1. The difference is mathematical rather than sizeable
2. Your Lender wont let you in the majority of cases anyway
3. If you want to save interest overpay your mortgage

dunstonh

Aspatria said:

Will paying my mortgage weekly make a significant reduction to interest paid overall? Are there any other advantages to paying weekly?

We have had multiple threads asking this recently.  Where are you finding this information that is leading you to ask here? - is it a source for the UK as it sounds more like something suitable for the US.

Yes, it would make a difference as there 52 weeks in the year which equates to 13 four weekly periods vs 12 monthly periods.   So, in effect, you would be making one extra payment per year.   However, the difference is tiny and lenders don't usually support weekly payments.   You can achieve a cleaner, simpler outcome by increasing your monthly payment by the equivalent of 1/12th of the amount.

grumbler

dunstonh said:

Aspatria said:

Will paying my mortgage weekly make a significant reduction to interest paid overall? Are there any other advantages to paying weekly?

Yes, it would make a difference as there 52 weeks in the year which equates to 13 four weekly periods vs 12 monthly periods.   So, in effect, you would be making one extra payment per year.   

What's 'extra payment'?  It's 52 smaller payments vs 12 bigger ones. And, I'm pretty sure, a lender will will use a different amount for weekly payments, not just 1/4 of monthly one.
This is assuming that it's the lender who calculates the payments and collects them by a DD. If you just pay one quoter every week, then yes, you essentially overpay about one monthly amount every year.

Aspatria said:

Will paying my mortgage weekly make a significant reduction to interest paid overall? Are there any other advantages to paying weekly?

Define 'significant'.
If

• montly payment is, say, £400
• interest rate is, say, 4%
• from the very start you pay weekly, not monthly

- you'll save about £150*4% = £60 £6 p.a.
This is a rough calculation assuming that there are 4 weeks in a month (i.e. no overpaying, just making smaller payments more frequently), but the differenece will be very small if you calculate this more accurately.
And if you think about switching from monthly to weekly, a simple one-off £150 overpayment will have about the same effect, bigger if you overpay more.

Newbie_John

@grumbler, sure it all makes sense what you say.

But if you watch the YouTube videos advertising weekly vs monthly they just say that you save a lot and simplify maths by showing big numbers saved. And that really comes from them saying that if you pay £2000 a month monthly that's £500 weekly  .. 
12x £2000 = £24000 paid using monthly way
52x £500 = £26000 paid using weekly 

And as with weekly you end up overpaying £2k extra a year on 30 year long mortgage - they simply quote that you save a lot. But don't explain where this saving comes from.

You can achieve similar result overpaying 10% a year, no need for weekly payments (they don't say it).

grumbler

Newbie_John said:

But if you watch the YouTube videos ...

Luckily, I don't, but I would've if the OP posted a link to the information that resulted in this general question.
The fact is that some savings can be made even without overpayments, and this fact shouldn't be dismissed only becouse of endless idiots on Youtube.

jrawle

grumbler said:

Define 'significant'.
If

• montly payment is, say, £400
• interest rate is, say, 4%
• from the very start you pay weekly, not monthly

- you'll save about £150*4% = £60 £6 p.a.
This is a rough calculation assuming that there are 4 weeks in a month (i.e. no overpaying, just making smaller payments more frequently), but the differenece will be very small if you calculate this more accurately.
And if you think about switching from monthly to weekly, a simple one-off £150 overpayment will have about the same effect, bigger if you overpay more.

Is this even correct anyway? Surely it's the other way round. If you make a monthly payment at the start of the month, it immediately reduces the amount of interest you are paying for the whole month. If you only make weekly payments, for most of the month you will be paying interest on a higher balance. The cost overall is therefore going to be greater.

If you keep your money in a savings account paying a higher rate than your mortgage, you could theoretically profit from paying weekly, but that's not really what we're discussing here.

grumbler

jrawle said:

grumbler said:

Define 'significant'.
If

• montly payment is, say, £400
• interest rate is, say, 4%
• from the very start you pay weekly, not monthly

- you'll save about £150*4% = £60 £6 p.a.
This is a rough calculation assuming that there are 4 weeks in a month (i.e. no overpaying, just making smaller payments more frequently), but the differenece will be very small if you calculate this more accurately.
And if you think about switching from monthly to weekly, a simple one-off £150 overpayment will have about the same effect, bigger if you overpay more.

Is this even correct anyway? Surely it's the other way round. If you make a monthly payment at the start of the month, it immediately reduces the amount of interest you are paying for the whole month.

Yes, but does this ever happen in practice? For any loan the first payment is never at the same day when you get the money. Yes, you can pay, and this will be an overpayment. 
With weekly payments you save a little because your first (smaller) payment is at the end of the first week, not the first month.

If you keep your money in a savings account paying a higher rate than your mortgage, you could theoretically profit from paying weekly, but that's not really what we're discussing here.

Yes, now is a rare situation when you can get higher interest on savings then you pay on your mortgage. In this case the picture is opposite - the later you make payments, the better for you.

jrawle

grumbler said:

Yes, but does this ever happen in practice? For any loan the first payment is never at the same day when you get the money. Yes, you can pay, and this will be an overpayment. 
With weekly payments you save a little because your first (smaller) payment is at the end of the first week, not the first month.

So the question isn't whether weekly payments save money, it's whether starting making payments after a week or a month will save money. You are making the assumption that if you choose to pay weekly, those payments will start in a week's time, whereas monthly payments would start in a month's time. It's just as likely that this hypothetical lender that allows you to make weekly payments would start taking those weekly payments on the first of the following month, the same day that they would have taken the first monthly payment. Given that no mainstream lenders allow you to pay weekly, it's a pointless discussion anyway. Were any banks actually to offer this facility, it would all be down to the details of exactly when they took payment.

In any case, whenever I have started a new mortgage, the first payment has been larger to cover the additional period until the first of the following month. From then on, the payments are made to cover each month in advance. In this case, even if the first weekly payment was taken at the end of the first week, while you might save a small amount of interest over that initial period, from then on, you would be worse off in every subsequent month.