What about paying extra principal on a weekly basis?

Question

I have a branch where my mortgage is held, very close proximity to my house. I have extra cash flow on a weekly basis. If I make an extra $500 dollars a week, vs paying $2,000 at the end of the month, will this be reduce my mortgage faster?

Answer 1

Most mortgages (in the US) accrue interest on a monthly basis, and in that case it doesn't matter on what day(s) you make your payment. 4 times per month or once per month will be identical if the totals are equal. It's rare, but some mortgages accrue interest daily (like a credit card) and in that case it would help to make earlier payments if possible.

Also, (mentioned in D Stanley's comment), $500/week does not equal $2000/month. It would have to be $2166.67 per month to be (almost) equal.

As a side note, your idea would help for paying off a credit card that is accruing interest on a daily basis.

Answer 2

Ask the mortgage company.

Some people do this. If you do this you will be making 13 monthly payments a year. If they credit is correctly that will shorten the length of the mortgage and save you interest.

What you want to avoid is having to pay a fee for this. In the past some companies would charge a setup fee to allow you to make mortgage payments every two weeks, thus getting 13 monthly payments in the year. The setup fee limited the benefit.

Answer 3

For most regular mortgages, pay a week or two early or pay up to the day before a late fee, and there is no difference in accrued interest.

Most banks will not accept partial payments, but will put them aside until a full payment is pending.

That said, I’d put aside whatever money you wish, and send it once a month with the regular payment. If you intended to go bi-weekly, you’ll just have extra money 2 times per year, and it’s the same as making 13 full payments per year.

I’d add, make sure you are depositing the maximum to your retirement accounts, have no other debt, and have an emergency fund before prepaying the mortgage. Paying down a 4% mortgage is smart, when the alternative is a .01% checking account. Not so good when you are skipping the match on your 401(k) or paying 18% on a credit card.

Answer 4

As others have noted, mortgage interest usually accrues monthly, so this would make no difference at all.

Even if the interest accrues daily or weekly, it would make only a modest difference. If your mortgage is 5%, I estimate this would save you $6 per month in interest. (Depending on exact dates of deposit, etc.) If you're driving to the bank, you could be paying more for gas, parking, whatever than you'll save. Even if you're walking past the bank anyway so it's just a matter of turning and walking in, is it worth your time for $6? I guess $6 is not totally trivial, but probably not going to change your life, either.

Answer 5

General opinion seems to be that paying $500 weekly, vs. $2k or so monthly won't make any difference to the overall interest you pay (because it usually accrues monthly). However, I think there is another aspect to consider...

I get the feeling that "I have extra cash flow on a weekly basis" implies your income is somewhat variable and some weeks you have an extra $500 or more "disposable" income to "get rid of", and two options are to pay $500 any week this happens to your mortgage, or leave it in your bank and pay an extra $2,000 at the end of the month (assuming you've had enough "good" weeks).

If that is right, then one potential advantage of choosing to make weekly payments is that by (almost) immediately committing it to the mortgage, there is less temptation/opportunity for you to spend the money on something else. You won't pay the mortgage off any quicker than reliably paying $2k or so extra per month, but you might find you are more reliably making the extra payments.

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The above assumes, as JoeTaxpayer notes in his answer, that you have sufficient in an emergency fund (e.g. to cover weeks where you don't make extra) and don't have higher-priority uses for the money (e.g. CC pay-down).