The Right Hook tonight (20-07-2009)

bungaro

hi,
just listening to the right hook there and they had some fella on talking about how to knock about 4 years off your mortgage by paying fortnightly instead of monthly, can someone explain this to me please if they know how its done?? and is anyone currently doing this?? and if so did it take much effort changing??
cheers

John Mason

compound interest is calculated at the end of the month.

so you pay less interest as you have made two payments in one month

Senna

doesn't it also work because your making more payments;
26 1/2 payments instead of 12 full payments, i.e 1 extra payment

Your term will reduce because your over-paying, which is always good.

Eurorunner

How easy/difficult would this be to adjust on an existing mortgage where payments currently go out monthly?

Senna

Eurorunner wrote: »

How easy/difficult would this be to adjust on an existing mortgage where payments currently go out monthly?

You would have to ask your bank, most banks should have no problem doing its, i know people who pay the mortgage bi-monthly and one person that's pays it weekly. If your on a fixed rate it might be more difficult.

SparkyLarks

My understanfing of this was as follows.
you save money because intrest is calculated every day so you pay less intrest each month and you end up sneeking in an extra payment.

TO do it you just set up a standing order to your mortgage account, so instead of the bank taking the money out of you account you put it into theirs.

subway

it works as interest is calculated daily (as mentioned earlier)
afaik, the bank have to agree to it

The_Conductor

Senna wrote: »

doesn't it also work because your making more payments;
26 1/2 payments instead of 12 full payments, i.e 1 extra payment

Your term will reduce because your over-paying, which is always good.

26.09 half payments, instead of 12 full payments. You are overpaying your mortgage by ~7.7% from the outset.

Compound interest is calculated daily by most financial institutions- but applied monthly (or in some cases quarterly).

You are saving on two fronts- by making slightly earlier payments on an ongoing basis- but of far more significance- by making overpayments of just under 8% on an ongoing basis- which comes straight off the outstanding principle. On a typical 30 year mortgage- you could potentially knock just shy of 5.8 years off the repayment term.

nacimrock

Hi All,

Contacted EBS today in an attempt to switch to fortnightly payments but they could not facilitate me. It appears their systems will only calculate interest on a monthly basis....whether I pay weekly or fortnightly makes absolutely no difference to the interest calculations.

Has anybody else experienced the same problems and can anyone confirm mortgage lenders that will accept these payments?

Cheers.

seamus

ICS definitely provide the bi-weekly facility.

D3PO

nacimrock wrote: »

Hi All,

Contacted EBS today in an attempt to switch to fortnightly payments but they could not facilitate me. It appears their systems will only calculate interest on a monthly basis....whether I pay weekly or fortnightly makes absolutely no difference to the interest calculations.

Has anybody else experienced the same problems and can anyone confirm mortgage lenders that will accept these payments?

Cheers.

why not overpay by 7 - 8% every month instead so ? If effectively the same thing

nacimrock

D3PO wrote: »

why not overpay by 7 - 8% every month instead so ? If effectively the same thing

Don't think I have a choice. I've a fixed mortgage with some hefty penalties if I withdraw!!!!

air

Whats the saving provided exclusively by the reduced interest as a result of bi-monthly payment as opposed to the overpayment part?

Senna

nacimrock wrote: »

Don't think I have a choice. I've a fixed mortgage with some hefty penalties if I withdraw!!!!

If your on a fixed rate, this probably isn't possible, a fixed rate wont allow overpayments. You could set up a saving account and make small extra monthly payments into that, then put it against the capital when the fixed term is up.

Whats the saving provided exclusively by the reduced interest as a result of bi-monthly payment as opposed to the overpayment part?

I would say very little, but every bit helps, the benefits of fortnightly repayments is the overpayment your making. Using Karls Mortgage Calculator on a 30yr mortgage of 250k, by making fortnightly repayments you would reduce the term by 6yrs 2 months. With this calulator interest is calulated monthly, so it wont show any benifits because of the interest. Some other website might?

bungaro

if you are getting mortgage interest relief then what happens with this?? is it paid fortnightly too or what???

D3PO

bungaro wrote: »

if you are getting mortgage interest relief then what happens with this?? is it paid fortnightly too or what???

not sure but doesnt really matter does it ? I mean if you would need the TRS bi weekly to live on you need to look hard at your financial situation as your in deep trouble.

seamus

bungaro wrote: »

if you are getting mortgage interest relief then what happens with this?? is it paid fortnightly too or what???

My gut says "probably", but you'd need to ask the lender this. There's nothing on Revenue's site which says that it must be a monthly thing, but all of its examples are given in monthly.

not sure but doesnt really matter does it ? I mean if you would need the TRS bi weekly to live on you need to look hard at your financial situation as your in deep trouble.

I think the point is that some months you will end up paying your mortgage three times. If TRS is applied before/on each repayment, then you can predict what that additional repayment will be. If you get a standard amount each month, then that third repayment will end up very harsh.

bungaro

thanks again for the replies everyone, am going to try and sort this out with aib over the next few days

Eurorunner

Has anyone got weekly or bi-weekly payments setup with NIB?

Have submitted a query to them asking for this adjustment.

Eurorunner

NIB will facilitate weekly or fortnightly payments. However, they did point out that if I make this change now, I may end up paying more when the ECB rates go back up (as they inevitably will next year). Does it make sense to wait till this has happened and they make the change to weekly/fortnightly???

Thanos

There was also mention of setting up a standing order to the mortage account. How does this work exactly?

Lets say the repayment at the moment is 1000, so you set up a standing order for 1300, so that you are paying 300 more, which takes down the amount over time. But what happens when rates go up to the point where your repayments are more then 1300? Do you have to change you standing order at that point?

Senna

Thanos wrote: »

There was also mention of setting up a standing order to the mortage account. How does this work exactly?

Lets say the repayment at the moment is 1000, so you set up a standing order for 1300, so that you are paying 300 more, which takes down the amount over time. But what happens when rates go up to the point where your repayments are more then 1300? Do you have to change you standing order at that point?

The amount of interest your paying makes no difference, you are paying more off the capital, its the capital amount that decreases and so shortens the mortgage.

Thanos

Senna wrote: »

The amount of interest your paying makes no difference, you are paying more off the capital, its the capital amount that decreases and so shortens the mortgage.

This I get, put what happens when the amount of your monthly repayment (on a variable rate) exceeds the standing order you set up?

The_Conductor

Thanos wrote: »

This I get, put what happens when the amount of your monthly repayment (on a variable rate) exceeds the standing order you set up?

Providing the interest component of the payment is being met- that is precisely what happens- the interest is paid- and if there is a balance over, it is taken from the outstanding principle. If there isn't a balance over- you have in effect a defacto 'interest only' mortgage (whether by arrangement or not), and if there is a deficit between the payment made and the interest due- the deficit is incremented onto the outstanding principle.

ZYX

I suppose I am stating the obvious but weekly mortgage payments only really suits people who are paid weekly and who do not go overdrawn. For those paid monthly, who never go overdrawn, a preferable thing to do is to ensure their mortgage payment goes out on the same day they are paid (with or without overpayment). Remember if you ever go overdrawn, have any other variable rate loans or intend in the furture taking out any loans then overpaying your mortgage makes very little sense.