Savings on Your Mortgage


A recent article by Conor Pope in the Irish Times (4/4/2011) highlighted a method of making some savings on mortgage payments. The premise is that if you pay your mortgage monthly and change to paying your mortgage fortnightly there are massive savings in interest to be made.

In his example a mortgage of €300,000 was taken over a 30 year term, paid monthly, the repayment was €1,610.46. If paid fortnightly the payment was €805.23 each time.  The difference in the interest amount paid over the 30 year term changes from €279,767.35 to €226,466.56. A saving of €53,300.79.

The reason the interest falls is two fold. First if you are paying fortnightly as opposed to monthly you are making extra payments, i.e. take a loan repayment of €1,000 monthly, there are 12 months in the year therefore the annual payments will be €12,000. However, paying fortnightly you will pay say €500, but you pay this 26 times which amounts to €13,000. Therefore you are paying more than you would on a monthly repayment schedule.

Secondly, most banks calculate their mortgage interest on a daily basis. Taking a loan of €100,000, say you pay €1,000 monthly, the bank will calculate the interest owed on the full amount at the end of the first month. If you pay €500 fortnightly, then the second half of the first month the bank will calculate the amount of interest you pay is less because for two of the four weeks, the capital owed is €99,500.

Not all banks are happy with providing fortnightly payments. But Bank of Ireland and AIB have said they can take payments fortnightly. If you can get them to agree and it suits your finances it is something to consider.

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