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Paying a mortgage weekly or fortnightly rather than monthly ?

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    #32
    murphm45
    Registered Users Posts: 505 ✭✭✭murphm45


    And another one. Sorry i couldn't put the two in one post

    If they don't help sorry (and i'm sorry-ier if it makes thins worse), but the concept of compound interest isn't the easiest thing to explain in a forum (in person i'd proably still make a bags of it too but i've no chance here!)


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    #33
    im a believer
    Registered Users Posts: 29 ✭im a believer


    heard something similar on ray darcy this morning, sounds good but i have a feeling ptsb wont make it east for us. they charge direct debit fees and standing order fees. i will certainly look into it though any thing that means paying less interest sounds good to me! i had a thought the other day: what if the government set up a mortgage company, something like credit union type thing, charged a reasonable rate of interest and could offer fixed rates? im managing the repayments at the moment but cant fix it and can see problems in the near future and dont know what to do.
    sorry bout the rant!!!


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    #34
    Officer Giggles
    Registered Users Posts: 1,677 ✭✭✭Officer Giggles


    Yakuza wrote: »
    I've just modelled it in Excel - the effect of halving your payment and doubling the frequency is negligible.

    Changing from, say, 1000 a month to 500 every 2 weeks will, however, drive down the term / interest paid as you're paying more a year, not just tinkering with the frequency.

    It looks as if Mr. Pope mixed up the two different ideas put forward in the article.

    I can't wait to see him row back on this one.

    Surely if your interest is calculated daily and you pay it in two goes there would be a saving


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    #35
    Abelloid
    Registered Users Posts: 3,495 ✭✭✭Abelloid


    Richard tea wrote: »
    Bi-weekly, twice monthly:confused: I was onto my bank and I can change my repayments by simply sending them in a letter of request. Not sure how to word it though:o The guy from the bank mentioned that its not widely advertised but I can do it. Do I request a change to Bi-weekly, twice monthly and do I have to state that I want it payed off the principal ammount :confused:

    You do understand the difference, don't you?

    Twice monthly only splits the mortgage into two equal payments without any substantial benefit, as pointed out above. Bi-weekly means for two months in every year you will make three payments and this is where how term decreases and savings are made.

    If you are paid monthly it probably isn't a good idea, but paid weekly/fortnightly it might be easier.


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    #36
    Richard tea
    Registered Users Posts: 3,597 ✭✭✭Richard tea


    murphm45 wrote: »
    And another one. Sorry i couldn't put the two in one post

    If they don't help sorry (and i'm sorry-ier if it makes thins worse), but the concept of compound interest isn't the easiest thing to explain in a forum (in person i'd proably still make a bags of it too but i've no chance here!)


    I cant open .xls files:o


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    #37
    Old_-_School
    Registered Users Posts: 459 ✭✭Old_-_School


    Dan_Solo wrote: »
    Some other websites are claiming the savings aren't anything like what is being claimed in this article.
    Has anyone else done the sums?

    For paying off half the monthly mortgage, half a month early, I calculated a total savings of €603.92 over the 30 years.
    And that was using his assumption of 5% for the interest rate which is well off the mark.


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    #38
    Richard tea
    Registered Users Posts: 3,597 ✭✭✭Richard tea


    JustinOval wrote: »
    You do understand the difference, don't you?

    Twice monthly only splits the mortgage into two equal payments without any substantial benefit, as pointed out above. Bi-weekly means for two months in every year you will make three payments and this is where how term decreases and savings are made.

    If you are paid monthly it probably isn't a good idea, but paid weekly/fortnightly it might be easier.


    I thought I understood. Im paid weekly. So for me to see a benefit I would need to switch to a bi-weekly payment. I have 31 years left on my mortgage so the savings could be substantial.

    Or, would I be better off just paying a little bit extra off every month. I have an option for this also? plus this would be more flexible, Or could I do both...ie switch to bi-weekly payments and pay extra off the mortgage?


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    #39
    prospect
    Registered Users Posts: 4,791 ✭✭✭prospect


    Its all a bit sensationalist I think, but certainly no harm to do bi-weekly payments if your cashflow can take it.

    An alternative would be to place the equivalent of a months mortgage into a reasonable interest earning long term savings account, say 5 years, and then when it matures put it off against the mortgage and start again with a new savings account.

    If the rate of interest on savings is higher than your mortgage interest rate (probably only applicable to trackers, and they will change upwards), then you'd probably be better off than following Mr Popes advice.

    -ETA-
    Badly worded:
    The above is based on the equivalent of 12th of a months mortgage into a savings account each month for 5 years,
    E.g. if your monthly mortgage is €1600, the putting approx €135 per month for 5 years at 2% would yield just about €8560.


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    #40
    Abelloid
    Registered Users Posts: 3,495 ✭✭✭Abelloid


    The way I see it is if for example your monthly payment is currently €1000 per month, splitting this into two €500s and paying every second week now means you are paying back €1000 (or one full month) more per year.

    If you are paid fortnightly this might be easier for you to manage, with the bonus of reducing the term.


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    #41
    Yakuza
    Registered Users Posts: 5,141 ✭✭✭Yakuza


    Officer Giggles wrote: »
    Surely if your interest is calculated daily and you pay it in two goes there would be a saving

    Here's my spreadsheet. I've modelled it using pure compound interest functions that I learned as a baby actuary (rather than the Excel PMT function that Conor Pope uses; this is the figure in red - it has no bearing on the rest of the spreadsheet).

    The one on the left is for paying once a month, the one on the right paying twice a month (but half the amount).
    For the example cited in the article (300k over 30 years at 5%), the savings amount to approximately €2000 over the 30 years, or you pay off the loan approx 2 months early. There's nothing like the savings he atttests to. To get that, you need to pay half your monthly repayment *every two weeks*. That's where the savings rack up.


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    #42
    murphm45
    Registered Users Posts: 505 ✭✭✭murphm45


    Richard tea wrote: »
    I cant open .xls files:o

    I'll attach pdf if you want but they mightn't be much use (you won't see where the figures are coming from)

    If you're paid weekly then i might be easier to pay your mortage weekly(from a budgeting point more than anything else, surely the bank told you this and i can't see them having any objection to you doing this, once they get their money they usually don't care how). If you currently pay 1,600 a month then you could pay 370 (16,000*12/52) a week (it'll be about the same annually, i've rounded the numbers so that might kick it out). this would have a minimal effect on the amount you repay over all but there would be a reduction (maybe two or three months worth of payments). any savings that are made are on the interest portions interest.

    This might help (and sorry if it doesn't or comes across with any sort of an air of paronisation, i'm trying to help but i'm obviously just crap at it). Suppose you borrowed 10k from the bank for two years @ 10% per annum. At the end of the first year (assuming you paid nothing back) you'd owe 11k and at the end of the second year you'd owe 12.1k (11k + 10% interest). If you repaid it all then you would pay 10k in capital and 2.1k in interest. But suppose you pay the interest after the first year. the balance due at the end will now be 11k and if this is repaid 10k in capital will have been repaid with only 2k interest. the saving is 100 and is the interest on the 1k charged in year one. (obviously the mortgage numbers will be smaller but this hopefully gives an idea of how the savings are "generated")

    If you increase the frequency of payment in your mortage all that is being reduced is this interest on interest (100 in the above example) but as the figures involved in the mortgage are smaller (due to a lower rate and shorter time frame between payments) the savings aren't as noteworthy, despite the larger sum and longer term.

    If you're still struggling to understand arrange a meeting with the bank manager and ask them to run through the numbers with them (it's easier to explain this in person and they should be trained for help you with queries like this) and don't leave until you fully understand what's happening/how it'll work.

    Again sorry if i've made things worse.


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    #43
    iMax
    Closed Accounts Posts: 3,489 ✭✭✭iMax


    Yakuza wrote: »
    Here's my spreadsheet. I've modelled it using pure compound interest functions that I learned as a baby actuary (rather than the Excel PMT function that Conor Pope uses; this is the figure in red - it has no bearing on the rest of the spreadsheet).

    The one on the left is for paying once a month, the one on the right paying twice a month (but half the amount).
    For the example cited in the article (300k over 30 years at 5%), the savings amount to approximately €2000 over the 30 years, or you pay off the loan approx 2 months early. There's nothing like the savings he attests to. To get that, you need to pay half your monthly repayment *every two weeks*. That's where the savings rack up.

    Is this not what he meant ? It's what my original post was about. It should be manageable, the amount you pay off is (roughly) the same every "month" & once you get into a cycle of payments it should be very hard to make mistakes.


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    #44
    murphm45
    Registered Users Posts: 505 ✭✭✭murphm45


    prospect wrote: »
    An alternative would be to place the equivalent of a months mortgage into a reasonable interest earning long term savings account, say 5 years, and then when it matures put it off against the mortgage and start again with a new savings account.

    If you are contemplating this don't forget about DIRT. It'll reduce the interest you receive by 27% (or 30% if it's a term deposit > 1 year) so the rate will need to be substantially above that on the mortgage.


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    #45
    Yakuza
    Registered Users Posts: 5,141 ✭✭✭Yakuza


    iMax wrote: »
    Is this not what he meant ? It's what my original post was about. It should be manageable, the amount you pay off is (roughly) the same every "month" & once you get into a cycle of payments it should be very hard to make mistakes.

    This is a verbatim quote from the article:
    Conor Pope wrote:
    If someone has a €300,000 mortgage taken out over a 30-year term and they make a monthly repayment, it will cost €1,610.46 every month, based on an average interest rate today.
    If they pay twice a month, it will cost them €805.23 each time. So they are paying exactly the same amount every month.
    But when a person pays monthly, the total interest on that loan over the full 30 years is €279,767.35 or €777.13 a month. If, however, that person pays off the mortgage twice a month then the total interest falls to €226,466.56 or an interest payment every bi-weekly period of €289.60.
    The reason the interest falls so substantially is very simple.
    Most banks calculate mortgage interest on a daily basis. If you owe €100,000 and pay off €1,000 monthly, a bank will calculate the interest owed on the full amount of €100,000 at the end of that first month. But if you pay off €500 every fortnight, then for the second half of that first month, the amount of interest you pay is less because for two of the four weeks, the capital owed is €99,500.
    Spread that over the 30 years and the savings really mount up.

    What he said and what he meant are different things, it would seem.

    The problem is he talks about merely paying half the amount twice a month, then later on he talks about paying X every two weeks. They are two different things. I've bolded his main point in the second paragraph - he is giving the impression that a mortgage holder's outgoings won't change overall. If they take that approach, they will make modest savings, but they need to pay more per year to realise the radical savings. There's no way to magic up such savings without paying more.

    He is mixing up two messages.


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    #46
    murphm45
    Registered Users Posts: 505 ✭✭✭murphm45


    iMax wrote: »
    Is this not what he meant ? It's what my original post was about. It should be manageable, the amount you pay off is (roughly) the same every "month" & once you get into a cycle of payments it should be very hard to make mistakes.

    The point is though you're no paying the same amount every month in some you'll pay 50% more (2 every year) then you would have before. So you have increased your mortgage repayments by over 8% per annum (26 from 24). If you increased your monthly payment by this 8.3% you'd see a nearly identical reduction in term and interest.


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    #47
    prospect
    Registered Users Posts: 4,791 ✭✭✭prospect


    murphm45 wrote: »
    If you are contemplating this don't forget about DIRT. It'll reduce the interest you receive by 27% (or 30% if it's a term deposit > 1 year) so the rate will need to be substantially above that on the mortgage.

    You are, of course, correct.

    You know it was in my mind as I was typing the post to mention DIRT, and when I came back to edit it was also to include DIRT, but I got distracted.

    Thanks.
    :)


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    #48
    Yakuza
    Registered Users Posts: 5,141 ✭✭✭Yakuza


    Dan_Solo wrote: »
    Some other websites are claiming the savings aren't anything like what is being claimed in this article.
    Has anyone else done the sums?

    See my post here.


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    #49
    Richard tea
    Registered Users Posts: 3,597 ✭✭✭Richard tea


    murphm45 wrote: »
    I'll attach pdf if you want but they mightn't be much use (you won't see where the figures are coming from)

    If you're paid weekly then i might be easier to pay your mortage weekly(from a budgeting point more than anything else, surely the bank told you this and i can't see them having any objection to you doing this, once they get their money they usually don't care how). If you currently pay 1,600 a month then you could pay 370 (16,000*12/52) a week (it'll be about the same annually, i've rounded the numbers so that might kick it out). this would have a minimal effect on the amount you repay over all but there would be a reduction (maybe two or three months worth of payments). any savings that are made are on the interest portions interest.

    This might help (and sorry if it doesn't or comes across with any sort of an air of paronisation, i'm trying to help but i'm obviously just crap at it). Suppose you borrowed 10k from the bank for two years @ 10% per annum. At the end of the first year (assuming you paid nothing back) you'd owe 11k and at the end of the second year you'd owe 12.1k (11k + 10% interest). If you repaid it all then you would pay 10k in capital and 2.1k in interest. But suppose you pay the interest after the first year. the balance due at the end will now be 11k and if this is repaid 10k in capital will have been repaid with only 2k interest. the saving is 100 and is the interest on the 1k charged in year one. (obviously the mortgage numbers will be smaller but this hopefully gives an idea of how the savings are "generated")

    If you increase the frequency of payment in your mortage all that is being reduced is this interest on interest (100 in the above example) but as the figures involved in the mortgage are smaller (due to a lower rate and shorter time frame between payments) the savings aren't as noteworthy, despite the larger sum and longer term.

    If you're still struggling to understand arrange a meeting with the bank manager and ask them to run through the numbers with them (it's easier to explain this in person and they should be trained for help you with queries like this) and don't leave until you fully understand what's happening/how it'll work.

    Again sorry if i've made things worse.

    Thanks murphm45, no need to repost it in pdf. Im sure you are explaining it fine. I just havent the head for this financial talk. As for the bank explaining things. It never happened. I went through a broker who was just geared towards getting me to borrow as much as possible.


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    #50
    dudara
    Registered Users Posts: 33,519 ✭✭✭✭dudara


    Threads merged together to avoid duplication

    dudara


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    #51
    murphm45
    Registered Users Posts: 505 ✭✭✭murphm45


    Richard tea wrote: »
    Thanks murphm45, no need to repost it in pdf. Im sure you are explaining it fine. I just havent the head for this financial talk. As for the bank explaining things. It never happened. I went through a broker who was just geared towards getting me to borrow as much as possible.

    Thanks but i'm probably not (explain stuff was never my strong suit). with regard to getting advice you'll be in a much better position now. The industry is on it's hands and knees and people will (or at least they should) be only too happy to help. If you got it through a broker go directly to the bank and talk to them directly. if you need to arrange more meeting don't be afraid to. They might whinge abou it but that's what they're paid for! At the end of the day they just want there money back so if you're proposing something that could give them greater security in this regard they'll more than likely do their best to help

    If that fails try talking to the regulator (rumour has it you can drop in and ask them questions). You might get more joy out of them.

    One final bit of advise though, if you do anything make sure you know what it is you're doing and you fully understand any risks/consequences associated with it. I've seen people get there fingers burnt badly by diving head first into stuff they don'y fully understand


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    #52
    Cookie_Monster
    Registered Users Posts: 24,470 ✭✭✭✭Cookie_Monster


    At the end of the day 5 minutes setting it up with the bank still saves you money, no matter how little, seems like a no brainer. There is zero impact on you to do it (unless you can't control your spending)


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    #53
    Postit
    Registered Users Posts: 254 ✭✭Postit


    murphm45 wrote: »
    The point is though you're no paying the same amount every month in some you'll pay 50% more (2 every year) then you would have before. So you have increased your mortgage repayments by over 8% per annum (26 from 24). If you increased your monthly payment by this 8.3% you'd see a nearly identical reduction in term and interest.

    Correct correct correct!!

    If I hear anymore about this "you'll save thousands" bar-stool economics nonsense I'll go mad!

    It's simple maths. If you pay more off your mortgage than is requested, you reduce the term, thus reducing the overall amount paid.

    Lets say you pay €1,000 per month off your mortgage at present, therefore you pay €12,000 per year.

    If you switch to paying €500 every two weeks, you pay €13,000 per year (€500 x 26 weeks = €13,000).

    So just pay off an extra €83.33 per month (€1,000 extra per year / 12 months) and you'll get almost exactly the same result.

    This every two weeks thing is nothing more than ill-informed nonsense, you are over-paying your mortgage, not saving thousands by merely changing a direct debit form.


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    #54
    Officer Giggles
    Registered Users Posts: 1,677 ✭✭✭Officer Giggles


    some fella from the irish mortgage brokers was on matt cooper there at the start of the show backing up what conor pope stated on darcy earlier today and what he wrote in the Times, if they are all so obvious wrong then why are they still going on about it, surely people have texted the shows telling them their figures are incorrect and such like


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    #55
    jimmycrackcorm
    Registered Users Posts: 14,329 ✭✭✭✭jimmycrackcorm


    I moved my mortgage payment to the start of the month instead of the end - so I guess I'd lose out by splitting that into bi-monthly payments.


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    #56
    copacetic
    Subscribers Posts: 16,559 ✭✭✭✭copacetic


    Officer Giggles wrote: »
    some fella from the irish mortgage brokers was on matt cooper there at the start of the show backing up what conor pope stated on darcy earlier today and what he wrote in the Times, if they are all so obvious wrong then why are they still going on about it, surely people have texted the shows telling them their figures are incorrect and such like

    the times article has been updated and the following added
    * This article was amended on April 4th, 2011. In the original, it incorrectly stated such savings would come at no additional cost to the mortgage holder. While some small savings can be made by simply splitting payments from monthly to twice a month, they are small as the mortgage holder is not paying off the capital any faster.


    The savings alluded to in the original piece only accrue because a person pays 26 fortnightly payments as opposed to 12 monthly ones, effectively making an extra four weeks’ payment each year, which should come off the capital. By switching to the fortnightly payment, a person can knock several years of a 30-year mortgage


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    #57
    Officer Giggles
    Registered Users Posts: 1,677 ✭✭✭Officer Giggles


    now if we could just get every so called expert that has been spouting this rubbish on every radio station to get back on and admit their a dumbass il feel alot happier


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    #58
    Postit
    Registered Users Posts: 254 ✭✭Postit


    copacetic wrote: »
    This article was amended on April 4th, 2011. In the original, it incorrectly stated such savings would come at no additional cost to the mortgage holder. While some small savings can be made by simply splitting payments from monthly to twice a month, they are small as the mortgage holder is not paying off the capital any faster.


    The savings alluded to in the original piece only accrue because a person pays 26 fortnightly payments as opposed to 12 monthly ones, effectively making an extra four weeks’ payment each year, which should come off the capital. By switching to the fortnightly payment, a person can knock several years of a 30-year mortgage

    Thank you. This is exactly what I said earlier.


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    #59
    Officer Giggles
    Registered Users Posts: 1,677 ✭✭✭Officer Giggles


    so it can be said that the only savings to be made in relation to this article are if you pay half a months mortgage every 2 weeks resulting in you paying a month extra at the end of the year, which isnt really "saving" you free money so to speak as you would have to have the 13 months worth of money in order to make the payments, what a load of S**T!!!


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    #60
    murphm45
    Registered Users Posts: 505 ✭✭✭murphm45


    copacetic wrote: »
    the times article has been updated

    They took their time with that, and even there correction doesn't specify that an extra monthly payment is being made every year, and this is where the so called "saving" is coming from.

    Problem is there're still plenty of people who won't see it, will change their repayment frequency and will find themselves no better of or worse still making more payments which they can't afford. i wonder will Conor Pope be on Ray D'arcy tomorrow clarifying this point (my instinct says not!)


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    #61
    tonymahoney
    Registered Users Posts: 71 ✭✭tonymahoney


    Hi everyone
    I read a most interesting article in today's Irish times by Conor Pope >
    http://bit.ly/dULG0X > about the huge savings you can make, albeit over the lifetime of a mortgage, by paying your mortgage fortnightly instead of the industry norm of monthly.
    Is anyone doing this or would people be interested in doing so?
    What reception are the banks giving this?


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