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Weekly Mortgage Payments Vs Monthly Payments

The thinking behind weekly payments saving you money is this; If you pay $2,000 in monthly payments there are 30/31 days of interest charged before your next payment reduces your mortgage and therefore your interest. But if you split that same $2,000 into weekly installments you are reducing your debt earlier and therefore paying less interest.

This is true but only in relation to the principal payment amount. Interest payments stay the same for the remaining mortgage whether paid monthly or split into weekly payments.

How much can you save by paying your mortgage weekly?

In short, not a lot.

Using the numbers from the first paragraph, let’s say you are paying $2,000 per month at 2.5% interest.  This is approximately the payment of a 30-year mortgage with $500,000 owing.

A $2,000 payment is broken into ~$940 of principal and ~$1,060 of interest.  We’re ignoring the rest of the mortgage because you’ll pay the same amount of interest on that part of your mortgage this month regardless of whether you pay monthly or weekly.

But paying that debt down in weekly instalments would mean paying off that $940 principal sooner ($235 after the first week, $235 after the second week etc).  So to find out how much you save the calculation would be (for this example):

  • 3 weeks of interest saved on $235 @ 2.5% = 33.9c
  • 2 weeks of interest saved on $235 @ 2.5% = 22.6c
  • 1 week of interest saved on $235 @ 2.5% = 11.3c
  • (note: the final week, you won’t save any interest because this is the same point that the monthly payment would have been made as well).

In other words, the total savings for paying a $500,000 mortgage weekly instead of monthly will be approximately $0.68 per month!

The benefit of weekly payments will increase fractionally over the life of your mortgage because your principal payments increase as your interest payments decrease, but this increase won’t be much. Even if you were paying all principal and no interest (which is what the very last payment on a mortgage looks like) you would only save ~$1.40 over a month. 

The bottom line is, for a standard-sized mortgage over 30 years, weekly payments are unlikely to save you more than a few hundred dollars in total during the course of your mortgage.

What about compounding interest?

People often assume paying weekly rather than monthly will have an ongoing compounded financial benefit. This is not the case. In the example above whether you pay weekly or monthly your mortgage is in the same financial position at the end of every month. Therefore the maximum you will ever save is that $1.40 per month.

At the end of the day, you won’t be paying your mortgage down any faster.

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What if I divide the monthly payments by 4 to calculate my weekly payment amount? Won’t that pay off my mortgage quicker?

Yes, it will because you have increased the payment amount by dividing a month into four weeks, equalling 48 payments over a year. In reality, you would be making 52 payments as per the calendar year. To show this in number form, if you were paying $2,000 per month and instead opted to pay $500 per week you would end up paying $26,000 onto your mortgage, not the $24,000 that would have occurred on the monthly payments.

This will actually pay your mortgage off in 27 years not 30 years so is a great mind trick to use. But you could also just increase your monthly payments to $2,166 from $2,000 and achieve exactly the same outcome. The benefit isn’t from paying weekly, it’s from increasing your payments over a year.

Note that you would need to let the bank know your chosen weekly amount as the bank will otherwise automatically divide your annual payment by 52 to calculate your weekly payment.  In other words, if you are paying $2,000 per month and then opt to change to weekly, the bank will, by default, set your payments at ~$461 per week meaning you still pay $24,000 over the year.  This means no extra benefits by paying weekly.

Is it better to for your mortgage to be on weekly payments rather than monthly?

Given the above, it is a personal call as to whether saving a couple of hundred dollars over the 30-year life of your mortgage is worthwhile enough to structure your principal payments to get this benefit.

A better option for many is to set up their mortgage payments to go out a day or so after payday. This helps people manage their money, thereby reducing cashflow anxiety a lot more than saving a few cents in interest each month.

By far the best thing you can do to save money on your mortgage over the life of the loan is pay it off faster (here's an article on paying a good trick to pay down your mortgage sooner). Being clear on your budget is invaluable in determining whether or not you are able and willing to pay more of your principal off each month.

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