MORTGAGE REPAYMENTS:
Irish Times HOW WOULD you like to knock as much as 20 per cent off the cost of your mortgage without breaking a sweat? Believe it or not, it can be done – and it is not hard – yet for reasons that are beyond us, virtually no one is doing it.
Irish consumers are conditioned to pay their mortgage on a monthly basis but this can cost a lot of money. If, instead of paying monthly, you pay your mortgage every two weeks then you could easily dramatically cut its cost over the full term.
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 fortnightly, it will cost them €805.23 each time.
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 every fortnight 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.
“The mortgage holder could knock almost €54,000 off the cost of their loan,” says Frank Conway, director of moneycoach.ie.
Earnmoneyforme.com
