Do weekly repayments save money?

Most people have been led to believe that the primary reason paying weekly mortgage payments instead of monthly is a smart move, is because interest is calculated daily on the outstanding balance, and by paying more often, it is expected that this will translate to a significant reduction in the amount of interest paid over the life of the mortgage.

However, on a $300,000 principle and interest home loan, at a rate of 7%, this only equates to a savings of $472 over the full 30 year term. So as you can see the savings are not earth shattering.

The real advantage in paying weekly mortgage payments rather than monthly only comes about when your lender calculates your weekly repayments by dividing the monthly repayment amount by 4 (rather than using "true weekly" ie: taking the monthly repayment amount, multiplying it by 12 and then dividing by 52). To demonstrate based on the above example, the monthly repayment would be $1995.91 and the weekly repayment $498.98 (calculated: $1995.91 / 4 = $498.98).

So, when the weekly repayment amount is annualised this equates to $25,946.83 ($498.98 x 52 weeks). In comparison, annualising a monthly repayment of $1995.91 equates to $23,950.92 ($1995.91 x 12). The difference is $1995.91 (a full month’s repayment amount). This means that over the course of the year, if your repayments are weekly (not ‘true weekly’), you have paid an extra $38 off your mortgage each week. Paying this additional amount weekly means you will pay $102,000 less in interest over the life of the loan and it will reduce your loan term by over 6 years.

There is no trick to any of this. It just comes down to the fact that if you pay more off your mortgage, you will pay less in interest. Even if you do want to make your mortgage repayments monthly, by setting your repayments a bit higher than the minimum amount there are huge savings to be had over the life of the loan.