Monthly Vs Bi-Monthly mortgage repayments

T

TomP1975

Guest
Hi
I have been using http://jeacle.ie/mortgage/ to understand any possible savings from making mortgage repayments on a fortnightly basis versus a monthly basis. For a 300K mortgage over 35yrs @4.6% - the term of the mortgage is shortened by 5yrs 9 months - making a saving of 58K.

Is this generally right, i.e. if you make bi-monthly as opposed to monthly repayments - you can make savings?

And does it depend on how your mortgage lender calculates interest on mortgage outstanding i.e. on a daily/weekly or monthly basis on the amount outstanding? Can i ask the lender this question?

i get paid every two weeks, so my account cash-flow could support this form of repayment. Thanks in advance
 
TomP1975 said:
Is this generally right, i.e. if you make bi-monthly as opposed to monthly repayments - you can make savings?

And does it depend on how your mortgage lender calculates interest on mortgage outstanding i.e. on a daily/weekly or monthly basis on the amount outstanding? Can i ask the lender this question?

i get paid every two weeks, so my account cash-flow could support this form of repayment. Thanks in advance
Click to expand...
When making bi-monthly payments you make them every two weeks not twice a month. Have a look on Jeacle and you'll see additional payments (in January and July???) turn up per/year.

52/2 = 26 payments (of half the monthly payment)
12*2 = 24 payments (of half the monthly payment)

So by switching payment style you're also switching the total payments in a year, thus leading to increased saving and a reduced term. The way in which the mortgage lender calculates the interest will change the total savings available/made, but with the accelerated payments you'll still save no matter what technique they use (you could make accelerated payments without the need to change to bi-monthly payments, but do check with Jeacle/another calc what the difference in saving will be).

Of course you can ask you're mortgage lender the question (they should also already have provided you with the answer in the terms and conditions of the mortgage).

Some additional info on the subject here and on other threads on AAM.
 
TomP1975 said:
Hi
For a 300K mortgage over 35yrs @4.6%
Click to expand...

You can ask your lender to calculate your fortnightly (not quite the same as bi-monthly) payments to repay the total mortgage over the 35 years, and you should get a much lower fortnighly payment. Some time ago I did this, and it worked out to the equivalent of approx 120 per month less on a 1100 per month mortgage.

In times of rising interest rates, it is highly recomended to do fortnightly, as I you think about it, you are paying off capital 2ish weeks earlier each time, so accruing less interest.
 
Making accelerate repayments saves money and reduces the effective term of the mortgage for two reasons
  1. You are chipping away at the capital quicker so the interest costs reduce quicker too
  2. If your annual repayment is, say, €12K that is €1K p.m. but you might accelerate this by paying €250 p.w. which is €250 x 52 = €13K p.a. so you have actually paid more than in the year than you would otherwise have done
A nice double whammy on interest costs if you can afford to do this and your lender is amenable to arranging it.

Bear in mind that accelerating repayments more frequently than the lender calculates interest is pointless - e.g. some lenders may still persist with monthly calculation of interest in which case there is no saving to be made in making repayments more regularly than monthly.
 
You must log in or register to reply here.
Back
Top