mortgage

Are weekly mortgage payments a better way?

Don TaylorDear Dr. Don,
I have been getting letters from my mortgage company advertising a plan that lets you make weekly mortgage payments that equal your one-time monthly payments. Is doing this on your own a better option than refinancing to save money paid to interest, or should this be done in addition to refinancing to a lower interest rate?

Thanks,
-- Nick Nickels

Dear Nick,
There's no need to take on a weekly mortgage payment plan with your lender. Because this month's mortgage payment is paying last month's interest expense, there's no interest savings in making weekly payments. Since the lender is telling you the sum of the weekly payments is equal to your monthly payment, you're also not making additional principal payments.

To reduce your interest expense on an existing loan, you need to make additional principal payments. You can do that on your own. If you are paid weekly and have trouble budgeting, then set up an automatic savings plan to fund your monthly mortgage payment and pay down more of the principal.

People who are paid weekly have four "five paycheck" months in a year. People who are paid biweekly have two "three paycheck" months in a year. Using this additional cash flow from your household's monthly budget to make additional principal payments will reduce the effective term of your mortgage and lower your total interest expense. The amortization schedule on Bankrate's mortgage calculator will let you calculate how additional principal payments reduce your loan term and interest expense.

The decision to refinance is based on how long you plan to stay in the house, the expected closing costs and how much lower the interest rate is on the new mortgage. At a minimum, you want to be in the home long enough that the reduction in interest expense exceeds the loan's closing costs. Don't worry about options to make biweekly or weekly mortgage payments on the new loan, either.

Featured Rates

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
MORTGAGE & REAL ESTATE NEWSLETTER

Timely market news and advice for consumers ready to buy, sell or invest in real estate. Delivered weekly.

Blog

Judy Martel

More homeowners above water

Rising prices are driving homeowners into positive equity, but it could be a long road.  ... Read more

advertisement
Partner Center
advertisement

Connect with us