Do weekly mortgage payments help?
by Mortgage Rates on Thursday, October 28th, 2010 | 4 Comments
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I’m not sure it would, I think that there is little different then if you do bi-weely payment, that’s what I do with both my properties.
Actually, yes they would for the same reason that bi-weekly payments do. Think about this, the mortgage interest is compounded against you for the entire month or term. At the end of that term, mid\end\beginning of the month, you make your payment, which as you’re probably used to, is mostly interest. Well, when you take advantage of the bi-weekly option, you chop that interest off half way up the hill so the principal interest stops growing and compounds that much less against you and thus you are saving. If you do the same thing on a weekly basis, it prevents that interest from compounding that much more. Therefor, you pay that much more principal and less interest over the life of your mortgage.
Take this scenario: You have a $200K mortgage with a 30 Year term and 6.5% interest rate. Lets say you make 12 payments per year, well, over the life of the loan you would pay apx. $250K in interest. If you made 52 payments(1/4 payments) per year, you would only pay about $85K interest over 30 years or you would pay the loan off earlier. Now let’s say you made 26 1/4 payments, you would pay roughly $161K in interest.
I’m a Mortgage Broker from Edmonton,Alberta. I never recommend clients to go for weekly payments and here’s why, I have used the figures earlier suggested:
1) Savings on a 5yr term from bi-weekly to weekly $102!
2) Savings on Amortization 0.08 of a year!
I’m sure that your saying right now, well I will still be saving money, right?
Here’s what can happen, you have some difficulties and find it impossible to pay your mortgage. Here in Canada some lenders will not put you into foreclosure into you have missed three payments. So if anything were to happen to you and you have a weekly mortgage, then after 3 weeks you would be in foreclosure. Is it worthwhile to save $102 over 5 yrs.
Your better off buying energy saving lightbulbs!!!
It won’t. And god help you if you don’t have money in the account on time. You’ll pay NSF fees and all sorts of stuff.
Make your own payments. If you want to pay it off sooner, divide your monthly payment by 12, then add that amount on top of your normal payment. 13 payments a year, credited in part every month, will cut most 30-year loans down to about 21-22 years.
21-22 years just happens to be the point where, if you made no extra payments ever, you’d normally reach 50% of your balance being paid off. Yep, that’s right. 22 years to pay off only half the balance. 1 extra payment per year pays the loan off in FULL in 22 years.
It’s hard to cut one big check every year, so doing it automatically every month in pieces will get you the same effect with less risk of having NSF’s or any other problems like the bank posting your payments wrong (it happens).