Any Borrower Benefit in Weekly Mortgage Payments?
2 May 2005, Reviewed October 16, 2007, Reviewed
January 10, 2010
Weekly payment plans provide no benefit to borrowers except the convenience to borrowers who are paid weekly of paying their mortgage weekly, for whatever that is worth.
"I have been following your advice by increasing my monthly payment by 1/12. My lender has suggested that I instead switch to a weekly payment plan, for which they charge $1 per payment. Would this plan result in my paying off my loan sooner?"
No, because weekly payment plans do not involve any additional payments. Your monthly payment is multiplied by 12 and divided by 52 to get the weekly payment, so you make the equivalent of 12 monthly payments a year. When you increase the monthly payment by 1/12, you make the equivalent of 13 payments a year.
You can make the two schemes comparable by increasing the weekly payment by 1/12 as well. Then you would make the equivalent of one extra monthly payment a year in both schemes. If you did that, you would pay off a little sooner using the weekly payment scheme, provided the weekly payments are applied weekly – meaning that the balance is reduced every week. Ask the lender whether weekly payments are applied weekly, or whether they are held until month-end.
"I was told that the weekly payments are held in a special account, and on the first of every month a withdrawal is applied to the mortgage payment."
That means that there is no interest saving to you in making weekly payments. And since the $1 payment fee is added to the balance, your loan will pay off less quickly under the weekly payment plan than under the monthly payment plan you are using now.
If the lender applies weekly payments to the balance monthly, the only possible benefit is to borrowers who are paid weekly. They may value the convenience and budgetary discipline imposed by having to pay their mortgage weekly. There is no other benefit.
Weekly payment plans provide no benefit to borrowers except the convenience to borrowers who are paid weekly of paying their mortgage weekly, for whatever that is worth.
"I have been following your advice by increasing my monthly payment by 1/12. My lender has suggested that I instead switch to a weekly payment plan, for which they charge $1 per payment. Would this plan result in my paying off my loan sooner?"
No, because weekly payment plans do not involve any additional payments. Your monthly payment is multiplied by 12 and divided by 52 to get the weekly payment, so you make the equivalent of 12 monthly payments a year. When you increase the monthly payment by 1/12, you make the equivalent of 13 payments a year.
You can make the two schemes comparable by increasing the weekly payment by 1/12 as well. Then you would make the equivalent of one extra monthly payment a year in both schemes. If you did that, you would pay off a little sooner using the weekly payment scheme, provided the weekly payments are applied weekly – meaning that the balance is reduced every week. Ask the lender whether weekly payments are applied weekly, or whether they are held until month-end.
"I was told that the weekly payments are held in a special account, and on the first of every month a withdrawal is applied to the mortgage payment."
That means that there is no interest saving to you in making weekly payments. And since the $1 payment fee is added to the balance, your loan will pay off less quickly under the weekly payment plan than under the monthly payment plan you are using now.
If the lender applies weekly payments to the balance monthly, the only possible benefit is to borrowers who are paid weekly. They may value the convenience and budgetary discipline imposed by having to pay their mortgage weekly. There is no other benefit.