3

My mortgage is paid on the 25th of every month by a direct debit.

I could change this payment to the 5th (as the money is waiting in my account).

I assume (perhaps mistakenly) that I then wouldn't be paying interest on the monthly sum for the 20 days of the each month.

Over the course of the mortgage, will this save me a significant amount of money or not?

If the answer is best illustrated by an example, please use these figures:

  • Mortgage: £100k
  • Duration: 20 years
  • Interest: 3%
  • Date change: 20 days
3

In the US, our standard fixed rate mortgages would show no difference. My payment is calculated to be due on the 1st of each month.

When I first got a mortgage, I was intrigued by this question, and experimented. I paid early, on the 15th, 2 weeks early, and looked at my next statement. It matched the amortization, exactly. Mortgages at the time were over 12%, so I'd imagine having seen the benefit of that 1/2% for the early payment.

Next I paid on the last day before penalty, in effect, 2 weeks late. I expected to see extra interest accrue, again, just a bit, but enough to see when compared to the amortization table. Again, no difference, the next statement showed the same value to the penny.

  • But did you ever change your due date, or just pay early? Not sure that it would make any difference, but I know that most early loan payments don't get applied until the due date. – Hart CO Aug 12 '17 at 16:15
  • No. Most US mortgages have their billing based on calendar month, due on 1st, payable no fee until 15th or so. – JoeTaxpayer Aug 12 '17 at 16:37
2

It depends on your bank and your mortgage contract details if they are willing to handle it that way, but you are correct in your assumption that you should be able to save the interest for the twenty days, which accumulates to significant savings.

A rough estimate for the overall saving is 20 years x 3% x 20/30 of the days = (one time) 40% of your monthly payment.

  • 4
    It's only significant on a small scale; you save 20 days interest compared to the old payment date for this payment, but there are still (roughly) 30 days to accumulate interest between each successive payment. – chepner Aug 12 '17 at 16:19
  • 7
    Correct. And so you save 20 days interest just once, not every month. – chili555 Aug 12 '17 at 20:11

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