The unusual mortgage payment trick that could clear debt five years earlier

Households may be able to save tens of thousands of pounds in mortgage interest payments by changing when they make their repayments. 

The mortgage broker Mojo says the average borrower could save £49,118 in interest costs by moving from monthly payments to bi-weekly. 

This would mean paying half the amount, every two weeks – and the average borrower could shave four years and nine months off their repayment term.

This is because borrowers would end up making 26 half-payments, or paying off 13 full monthly sums in a year, rather than 12. 

However, mortgage experts have cautioned that this might not be possible for some borrowers, as not all banks are set up to take bi-weekly payments. 

> When will interest rates fall again? Forecasts on when base rate will be cut

Switching from a monthly mortgage payment to a bi-weekly payment schedule could shave four years and nine months off the average mortgage term, according to Mojo Mortgages

Can I pay my mortgage lender twice a month? 

Anyone considering this will first need to be sure they can afford it. Even if the payments are split into smaller chunks, it still requires the cash for an extra mortgage repayment each year. 

They will also need to get in touch with their lender and check that they allow bi-weekly payments, as many lenders won’t support this payment structure.

Most lenders require borrowers to stick to a contractual monthly payment, though they will usually accept additional overpayments whether made regularly by standing order or as one off payments.

Santander doesn’t accept bi-weekly mortgage payments and requires all customers to have a monthly direct debit. 

The only time this might vary is if a customer is struggling with their monthly repayments, and Santander will work directly with them to come up with a solution. 

Nationwide’s mortgages are also set up based on customers making a single monthly payment. 

However, it says they can choose to make multiple payments throughout the month to suit their circumstances as long as the monthly payment is made in full by the 28th of the month.

Customers can use Nationwide’s mortgage manager to set up regular or ad hoc payments or make overpayments.

Barclays customers also need to stick to their contractual monthly payment. As long as that is made in full by the due date – we have no limits on the number of overpayments that can be made alongside it. 

Barclays says it also allows customers to overpay up to three times their contractual mortgage payment without any penalties.

Halifax said that while it’s possible to do it’d be a complicated combination of changing the direct debit date and amount plus setting up a standing order for the other payments.

A halifax spokesperson said: ‘We really would advise using a standing order to overpay monthly or make one-off payments would get the same or better outcome. 

‘If you can make a few bigger overpayments early in the year, that’s better than more, smaller overpayments over a longer period. 

‘We also remind customers that they should bear in mind the 10 per cent overpayment limit on 1 January each year to avoid an early redemption charge.’

We also asked HSBC whether it would accept a bi-weekly payment structure, but we recieved no response.  

David Hollingworth, associate director at broker L&C Mortgages, says: ‘Lenders and their systems are geared up for taking monthly payments by direct debit.

‘Lenders may offer alternatives like standing orders, but don’t start playing around with what you pay without talking to the lender, to avoid any chance of falling behind.’

Mark Harris, chief executive of mortgage broker SPF Private Clients, adds that even if your lender does allow bi-weekly payments, the administration involved might prove a headache. 

‘Halifax is one lender which allows more frequent payments but it’s not straightforward,’ he says. ‘The borrower needs to let the first direct debit go through, then cancel it before creating two separate standing orders.’

He also sounds a word of warning, in that borrowers might need to manage their money differently to account for two monthly mortgage payments. 

‘Should fortnightly payments become more common, the most obvious downside is how the borrower manages their cashflow,’ Harris adds. 

‘Most borrowers tend to make payments – not just for their mortgage but council tax, other bills and credit cards – soon after their salary hits their account because they don’t have the discipline not to spend the money on other items.’

You can still make mortgage overpayments 

If a lender doesn’t offer a formal bi-weekly payment program, borrowers can achieve the same result by making overpayments. 

One strategy would be to continue paying their regular mortgage payment, but then make a separate overpayment each month amounting to a twelfth of that monthly amount – adding up to a thirteenth payment by the end of each year. 

David Hollingworth, associate director at L&C Mortgages

They could also pay that money into an interest-earning savings account each month, where it would increase in value, then use it to make a single overpayment at the end of the year.   

Most mortgage lenders allow customers to overpay up to 10 per cent of their mortgage balance each year, but if they pay more than that then fees may apply.  

Hollingworth adds: ‘The bi-weekly concept highlights that even relatively small overpayments will help to slash the total interest paid over the life of the loan, and can even see the debt repaid early.

‘Most lenders give leeway to make overpayments without incurring an early repayment charge, typically up to 10 per cent per annum. 

‘That will usually be adequate flexibility for most borrowers’ overpayments, either as an ad hoc lump sum or on a regular monthly basis. 

‘A borrower with a £200,000, 25-year repayment mortgage at a rate of 4.5 per cent would pay £1111.66per month. 

‘Overpaying by £100 per month. would cut the total interest over the life of the mortgage by more than £21,000 and repay the mortgage three years and five months early.’

He adds that most lenders now calculate interest on a daily basis, so the benefit of any overpayment should be felt immediately. 

Where could people save most?

For those that are able to adopt the bi-weekly payment strategy, Mojo has also looked at the amount people could save based on average house prices in different parts of the UK.

Households in Greater London would see the largest financial savings from switching from monthly to bi-weekly, reducing interest by £92,200 on an average house price of £511,279.

Even those in regions with lower house prices, like Northern Ireland (£168,791) can still see significant savings of £30,440, according to Mojo.

Making annual overpayments in areas like the East of England and Yorkshire and The Humber can reduce mortgage terms by as much as five years and three months.