Paying extra toward principal on mortgage

[Mom3girls]

Hello! My monthly mortgage payment is $1840. of which only $200 is going toward principal right now. We have been paying exactly every four weeks. Was thinking of joining their Bi-Weekly payment plan. They will take $920 every two weeks automatically and it says it will payoff my mortgage 7 years and a few months early. This is a new 30 year mortgage as of December.
I was wondering if I pay extra towards principal also is there a way to tell how much I should pay extra? And how much time would that cut out? TIA

 

[ICF]

Your mortgage company may have a payment calculater on their website ( I know Citi does), you might want to look around on there. You can probably do a websearch for mortgage payoff and find info as well.

However...most of these that companies that want you to sign up for the "service" charge you some sort of fee (at least a set up fee). I put extra each month as part of my regular payment, but it didnt make sense to me to pay to give them money sooner if I could just send extra in myself once a month) and still pay off the loan in half the time.

 

[semo233]

Two things: First, make sure you do not have an early payoff penalty. Second, by signing up for the bi-weekly payment plan, you are commiting yourself to paying those payments at sometimes a higher monthly total payment. Not a problem right now, but if something happened, you'd be that much farther in hot water. We just continued to pay extra every month and paid off our mortgage VERY early without penalty.

 

[disneymom2003]

Don't do it. The last poster is right they charge you a fee to do this. I read some where that it is equivalent to making 2 extra payments a year. What I would do is add two months of payments (in your case $3680) together and then divide by 12 (in your case it is 306.66) Add that to be applied to your principal each month and you have done the same thing without paying your mortgage company any fees.

 

[Evi]

Disneymon is right. don't sign up for anything just make a personal commitment to make an extra payment every year if you can make 2 it will help and add up.

 

[mickeyplanner08]

Bankrate has a great mortgage amortization calculator. That would be the most helpful for you to see what making those extra payments will do for you. You can plug in additional payments and then see how much more quickly you can pay that thing off. We are in a 20 year mortgage that we will hopefully pay off in under 15. Would be quicker, but Christian ed tuition is eating a big portion of our budget right now. Good luck to you...we just add the extra principal with every monthly payment.

 

[hrh_disney_queen]

When I was in mortgage banking many many moons ago, the law was that you can only deduct the interest for 13 payments per year as far as taxes go..and you can only be one month ahead-again for tax purposes. So if you get more than one month ahead in one year, you may not be able to claim those extra months' interest as a deduction. Maybe it's changed.

A very interesting thing to note while using the amortization calculator is to see how much interest you can save merely by adding $25 or so to your mayment every month.

The bank I worked for did not accept bi monthly payments. They just held the first half until the second half came in. Make sure there is such a plan in place at your mortgage company before you start.

 

[crisi]

Two things: First, make sure you do not have an early payoff penalty. Second, by signing up for the bi-weekly payment plan, you are commiting yourself to paying those payments at sometimes a higher monthly total payment. Not a problem right now, but if something happened, you'd be that much farther in hot water. We just continued to pay extra every month and paid off our mortgage VERY early without penalty.

We did the same and for the same reason. We didn't want to commit to the increased cash flow change - in fact, refinanced for a 30 year mortgage when we refinanced to have the lowest possible required payment - in case something happened. That gave us a lot of flexibility to pay extra on the mortgage on our own terms - which frequently were a lot more than I would have committed to had I made a commitment (bonus check - at the mortgage!), and I paid off the whole 30 year mortgage within five years (we are in a much smaller home than we "could afford.")

 

[riley2008]

When I was in mortgage banking many many moons ago, the law was that you can only deduct the interest for 13 payments per year as far as taxes go..and you can only be one month ahead-again for tax purposes. So if you get more than one month ahead in one year, you may not be able to claim those extra months' interest as a deduction. Maybe it's changed.

A very interesting thing to note while using the amortization calculator is to see how much interest you can save merely by adding $25 or so to your mayment every month.

The bank I worked for did not accept bi monthly payments. They just held the first half until the second half came in. Make sure there is such a plan in place at your mortgage company before you start.

What the OP was talking about was making additional principal payments - not paying monthly payments ahead. Two TOTALLY different things.

 

[GingerJay]

Like the others have said, you really shouldn't sign up for the bi-monthly because it commits you to making those payments and you may even be charged extra. By making one extra payment a year, you can pay off your mortgage about 7 years early. BUT that payment can be made at any time during the year (ie: tax return, bonuses from work, etc). You shouldn't tie yourself to the bi-monthly because if something unexpected happens, you might be in trouble.

Anyway-congratulations on your home

 

[Mom3girls]

My mortgage company does it (Citimortgage). And the fee is $375 to sign up. The bi-weekly payments are exactly half of our monthly mortgage payment. If I do that it says I should pay it off 7 yrs and 4 months early. If I pay $200 extra on top of it to principle every month ($100 every two weeks) will that knock many more years off? I wanted to do 15 yr but was afraid if God forbid something happened to one of our jobs that things would be too tight. That's why we chose 30 year but like I said I don't want to pay on it til we are 70 years old!!! I'm gonna try those mortgage calculators later tonight, THANKS!!!

 

[Gr8t Fan]

My mortgage company does it (Citimortgage). And the fee is $375 to sign up. The bi-weekly payments are exactly half of our monthly mortgage payment. If I do that it says I should pay it off 7 yrs and 4 months early.

You don't have to pay a set-up fee -- that's wasted $$ and it locks you into HAVING to pay the extra EVERY month. Just simply make arrangements to send in additional principal each month and make sure that the extra amount is applied toward your principal balance. My mortgage company, Wells Fargo, autodrafts my payment each month and an additional $225 each month is applied toward principal. They also have an option in online banking to make extra payments toward principal and I do that when I get my Christmas bonus.

 

[2infinityandbeyond]

The easiest way to make extra principle payments and keep track of them is to pay next month's principle at the same time you pay this month's full mortgage payment, with a separate check (put in the Note section: PRINCIPLE, PAYMENT #__). Use your amortization schedule.

For example:

Month 1: Pay month 1's full payment and month 2's principle
Month 2: Pay month 3's full payment and month 4's principle
Month 3: Pay month 5's full payment and month 6's principle.
etc.

By doing it this way, you are keeping track of exactly how the extra principle payments are knocking down your mtg. balance. Some people make lump sum principle payments--$100, $250, $500--but it's hard to keep track on your amortization schedule when you do that.

 

[SleepyatDVC]

The easiest way to make extra principle payments and keep track of them is to pay next month's principle at the same time you pay this month's full mortgage payment, with a separate check (put in the Note section: PRINCIPLE, PAYMENT #__). Use your amortization schedule.

For example:

Month 1: Pay month 1's full payment and month 2's principle
Month 2: Pay month 3's full payment and month 4's principle
Month 3: Pay month 5's full payment and month 6's principle.
etc.

By doing it this way, you are keeping track of exactly how the extra principle payments are knocking down your mtg. balance. Some people make lump sum principle payments--$100, $250, $500--but it's hard to keep track on your amortization schedule when you do that.

This method of paying down the mortgage was what was recommended to us YEARS ago because it was based on our original amortization schedule. Banks sometimes would either not apply the extra payments correctly or did not re-calculate the amortization schedule properly. It was extremely hard to confirm that our extra payments were indeed shortening the length of our loan and decreasing the interest as it should be.

But with the increased power of computer software that is readily available not only to the banks but to the homeowner online, it is easy to pay lump sums and re-calculated the amortization schedule each time. We just check our new balance with the banks each month.

The advantage to the method suggested is that it is GREAT and easy in the beginning when interest is high and principle is low to add in the principle due in the next payment to this month's payment.

When you get close to the end of the life of the loan when the interest is low and the principle due that month is high, adding next month's principle to this one is going to be much harder because the amount required might be too high.

A better and easier way might be to add a set amount as additional principle each month. It may be higher than next month's principle NOW but it will probably be a lower amount a few years from now...

 

[Tiggs14]

We pay our mortgage weekly and then add an additional 20% to each payment as this is the maximum we are allowed to add to the payment. The additional 20% comes right off the principal and paying weekly saves us over 7 years during the course of the 25 year mortgage.

 

[Maggie'sMom]

I wouldn't sign up for the bi-weekly payment program for the reasons mentioned already. Generally there is a fee to do this and you are committing yourself to paying more every month. You may want a little flexibility in case your circumstances change.

Take the amount of 1 months mortgage payment and divide by 12. Add that to your regular payment. Specify on your payment stub that this amount is to go towards your principal.

 

[Ericandjenng]

My mortgage company does it (Citimortgage). And the fee is $375 to sign up. The bi-weekly payments are exactly half of our monthly mortgage payment. If I do that it says I should pay it off 7 yrs and 4 months early. If I pay $200 extra on top of it to principle every month ($100 every two weeks) will that knock many more years off? I wanted to do 15 yr but was afraid if God forbid something happened to one of our jobs that things would be too tight. That's why we chose 30 year but like I said I don't want to pay on it til we are 70 years old!!! I'm gonna try those mortgage calculators later tonight, THANKS!!!

I used to have Citimortgage and they do allow you to pay extra toward the principle without signing up for this program. There is even a way to do it online if you pay online each month.

 

[rparmfamily]

My bank offers something like that, where you have to pay to "sign up" for it. But I know if I pay extra on my monthly payment, they just hold it until another full payment is made and then apply it all at once as a payment. (like if I pay $200 a month, they don't apply it, and instead let it add up until my full payment amount.) Can I just call them and make a payment to principal?

 

[apnep]

...I paid off the whole 30 year mortgage within five years (we are in a much smaller home than we "could afford.")

Wow! That is amazing! Congratulations! I wanna be like you!

Ang