Can I save interest on mortgage by increasing frequency of payments?

[Ishmael]

Stats: Variable Mortgage
Pay: Monthly
Interest Accrues: Daily
Lender: Bank of ireland
No transaction charges will be incurred by changing payment frequency


I currently pay my mortgage on a monthly basis but i read last weekend in the Tribune that I can save money by paying my mortgage on a bi monthly basis??

ie do i save by paying 24 times a year as opposed to 12 ?????

 

[Guest107]

Re: Can I save interest on mortgage by increasing frequency of payments??

If you are paid fortnightly they may oblige but normally you just ask them to vary the payments up for each month and they will take it.

Thats 26 payments a year is it not , I know people on fortnightly salaries but I know nobody on 2 salary checks a month . Rounding the payments up a bit will bite even further into the mortgage.

 

[Ishmael]

Re: Can I save interest on mortgage by increasing frequency of payments??

thanks for the input 2pac but question still remains if i will save interest?

 

[whathome]

Re: Can I save interest on mortgage by increasing frequency of payments??

thanks for the input 2pac but question still remains if i will save interest?

You will - interest is calculated on your outstanding balance daily.

 

[ClubMan]

As above - where possible making repayments up to as frequently as interest is calculated (daily with many lenders, monthly with some still) will save on interest costs and reduce the effective term of the mortgage. This is the same principle on which current account/offset mortgages work - holding money on deposit which is used to reduce the outstanding capital thereby reducing the interest costs otherwise due. Use Karl Jeacle's mortgage calculator to estimate the possible savings with different accelerated mortgage repayment strategies.

 

[Satanta]

Re: Can I save interest on mortgage by increasing frequency of payments??

You will - interest is calculated on your outstanding balance daily.

..... you will, but the amounts will be small.
If it suits with your salary payments then by all means go for it, it will help reduce interest payments, just not by a huge amount.
By the sounds of it you are going to be paying the same amount, just broken into two payments (saving some interest in the ~2 weeks until the next payment assuming a mid month / end of month payment method). To really make a saving on the interest you should try and round up payments and further reduce the capital amount (suggested above by 2pack) reducing the amount the interest is calculated on by a more significant amount.

Easier said than done, but the possible savings of reducing the term of your mortgage (far lower interest payments), reduced life cover (shorter term will provide far cheaper cover), reduced LTV for a better rate (if transferring etc) will be significant compared to the amount saved by splitting the payments (though every cent counts so go for it! - what you save on interest you can pay off the capital and reduce interest further).

 

[ClubMan]

Re: Can I save interest on mortgage by increasing frequency of payments??

..... you will, but the amounts will be small.

Not necessarily. Unless you have crunched the numbers and can tell us?

 

[Satanta]

Re: Can I save interest on mortgage by increasing frequency of payments??

Not necessarily. Unless you have crunched the numbers and can tell us?

Not in a position to crunch any specific numbers as I have none to work from (in relation to the OP), but speaking from a generic view I'd stand over the comment.

(Edit- for some rough ones the OP can look at the standard loan on the Jeacle calc. 250k, 5%, 30 years. By switching from monthly to bi-weekly (go to settings, then look in summary) payments the term is reduced by 4 years 8 months and a saving of €41,991.48 over the 25 years and 4 months is achieved. Comparing this to (even a small) increase in monthly payments over a long timeframe is a relatively small saving to what can be achieved, IMHO).


It would be a saving in interest resulting from half the monthly payment (unless the op intended to up payments, doubt this given the reply to 2packs suggestion to lower capital) for approx 2 weeks (again, depends on the specific setup the op goes for with the payments but this would be the most logical) from the current interest being paid (~ 4/5%).

I'm not saying it isn't worth going for the bi-monthly payments, infact I encourage it to save interest payments and reduce the capital, but relative to the savings available through reducing the term of the mortgage (relative to the interest savings available, a reduction in term (if the OP can/could manage it) may provide huge savings) and the additional savings available through doing this, the bi-monthly payments shouldn't be the only avenue the OP should consider.