Paying mortgage twice monthly?

[mrsklamc]

I thought I saw here on the DIS once that depending on what kind of mortgage you have, you can do this to save interest. How do you know what kind of mortgage you have to have, and how do you calculate how much it would save?

Thanks!

 

[disneygals]

if you go to www.hsh.com there are calculators to help you figure out interest savings. We haven't done bi-monthly, but just added $$ to each payment.

We are paying off our mortgage early, which would be more exciting if we didn't have 3 kids going to college..1 this year, 1 in 2 years, and 1 in 4 years

 

[averysmom]

Semi-monthly isn't as big a savings as bi-weekly - since with bi-weekly, you make two extra payments a year. If you get paid bi-weekly, just have your payments come out on your payday and it;s no biggie. We've always paid bw, but I think the difference is years,

 

[CaliforniaDreamin]

If you pay only one extra payment a year at the beginning of your mortgage (when almost all your payment is interest), I think you can pay it off between 10-15 years early on a 30 yr mortgage. I wish we had done this, we would have our house paid off by now.
So yes, paying biweekly will cut years off your mortgage. The earlier in the mortgage you start, the more years you will save, as the extra payment should reduce the principle of the loan which will reduce the interest amount. You may have to tell the bank you want the extra payment to go to the principle only, and you aren't making a payment ahead. Does that make sense?

 

[mrsklamc]

Yes, that makes sense. We are changing to a 15 year this month, I'm just hoping to save even MORE!

 

[Swimalie]

Here is an easy way to make an extra payment each year and take about 7 to 10 years off the mortgage. Take your monthly payment and divide by 12. Then add that amount on to each month's payment, mark it principle only. You'll be making a full payment by the end of the year.

 

[DISdreamin']

Just be careful to ask whether there is a pre-payment penalty. I know for our mortgage, there was one for the first year only, meaning we couldn't pre-pay that year. However, we did set it up as bi-weekly right from the get go (no penalty with our lender for doing that) and that change right fromt he start cut our 30 year mortgage down to just under 24 years in total.

We're now going to refi as a 15 year bi-weekly (we still have about 19 years left on our current mortgage) but with the bi-weekly payments it will be paid off in just under 13 years. Once we're through our first year with the new mortgage, we'll also start slamming money at the principal as well - either monthly or lump-sum yearly. We hope to own our home by the time our oldest is ready for college. Keep your fingers crossed for us!

Oh, and if you really did mean just making two payments per month, semi-monthly payments really don't cut down the life of the loan like bi-weekly, as an earlier poster had pointed out.

 

[bumbershoot]

What's the difference between semi-monthly and bi-weekly? They sound the same to me.

 

[wdwfan16]

What's the difference between semi-monthly and bi-weekly? They sound the same to me.

semi-monthly is twice each month. You make 24 (12 months x 2 payments/month) payments per year.

bi-weekly is every two weeks. You make 26 (52 weeks / a payment every two weeks) payments per year.

 

[jedijill]

Semi-monthly is like paying on the 1st and the 15th of the month whereas bi-weekly is every two weeks. Semi-monthly doesn't take advantage of the extra 4 weeks....you make 24 payments as opposed to 26 payments on the biweekly plan.

HTH

Jill in CO

 

[patsal]

I still pay monthly but I started adding ten dollars a month to the payment the first year, 20 more the second year, 30 more the third year, 40 more the fourth year, 50 more the fifth year... I will have my 30 year mortgage paid off in 13 years.
The extra amount is large now, but we have the income to work it so we do.

Remember it is compounded so that extra 10 was just ten, then 20 was really 30 extra and the 30 became 60 and so on. For us it was totally painless and if we had an emergency we were not locked into anything but had flexibility.

 

[Swimalie]

Semi-monthly means 2 times a month = 24 times a year.
Bi-weekly means every other week = 26 times a year.

 

[bumbershoot]

Aha. Thanks!

 

[CaliforniaDreamin]

I still pay monthly but I started adding ten dollars a month to the payment the first year, 20 more the second year, 30 more the third year, 40 more the fourth year, 50 more the fifth year... I will have my 30 year mortgage paid off in 13 years.
The extra amount is large now, but we have the income to work it so we do.

Remember it is compounded so that extra 10 was just ten, then 20 was really 30 extra and the 30 became 60 and so on. For us it was totally painless and if we had an emergency we were not locked into anything but had flexibility.

Way to go!!
I just wish we had done that. Even if just stayed at 10 more dollars a month. We bought our house in '96, over 14 years ago. It would have been so nice to have no mortgage.

 

[kathie859]

If you want to see what paying bi-weekly does to reduce interest and years on a mortgage go to reduce-my-mortgage.com. It's very interesting.

 

[DeniseinNS]

We pay bi-weekly on what was originally a 25 year mortgage when we did it monthly. After 7 years we now only have 11 years remaining!!! The interest rate is lower now then originally as well but those extra payments have really helped.

 

[fab5friend99]

Please ask your mortgage company when the extra payments will be applied. I looked into this once and the extra payments would only be applied once a month which defeats the whole purpose! You want them to be applied when you make them to reduce the amount of interest charged on the outstanding principal. They had programs which would apply more frequent payments but they charged a fee to cover their costs of the additional processing. I just stayed with one payment per month and just paid extra.

 

[DISdreamin']

Please ask your mortgage company when the extra payments will be applied. I looked into this once and the extra payments would only be applied once a month which defeats the whole purpose! You want them to be applied when you make them to reduce the amount of interest charged on the outstanding principal. They had programs which would apply more frequent payments but they charged a fee to cover their costs of the additional processing. I just stayed with one payment per month and just paid extra.

Excellent point if you are considering truly making bi-monthly payments. I was surfing and found a site that suggested even with true bi-monthly, even if it is applied the way you intend (payment, say on 1st and 15th of each month and credited immediately) the bimonthly option only shaves a month off a 30 year mortgage. Not sure whether that number is accurate, but bimonthly certainly doesn't have the same effect as biweekly.

 

[SarahKate]

When we bought our current house 3 years ago, we did the bi-weekly mortgage. They told us at the time our 30 year mortgage would be paid off in 23 years.

Last year there were some fantastic rates so we refinanced. We really started looking at the percentages and the rates were actually a little HIGHER on the bi-weekly mortgage. So we ended up doing a traditional mortgage but are still making our payments bi-weekly. We were already used to doing it this way so it wasn't a big deal. So we are still doing good with making those 2 extra payments throughout the year but also getting a really great mortgage rate. I know this may not necessarily be how the rates pan out everywhere, but that's how it is here.

 

[DISdreamin']

We really started looking at the percentages and the rates were actually a little HIGHER on the bi-weekly mortgage. So we ended up doing a traditional mortgage but are still making our payments bi-weekly.

As you said, this will differ from lender to lender. If you are going to choose to pay biweekly from the inception, just be sure there aren't any pre-payment penalties (ours has one for the first year). We found, though, that our lender had a better interest rate than others in the area - even our CU was higher - and offered the automatic biweekly payment withdrawal, which we .