Paying mortgage twice monthly?

[lisarojer]

hello
i am lisarojer here posting some info about paying mortgage twice in a monthe
If paying your mortgage biweekly (every two weeks) cuts about seven years off your pay back schedule, then paying weekly should cut off 14 years, right? If you find a place where that works, let me know and I'll sign up with you!

Though there are international variations in the way mortgages are calculated, most United States home loans have some common characteristics. Two notable ones are that interest is computed monthly (usually at 1/12th of the annual rate) and that the interest is charged "in arrears," that is, after it was used. Though these can vary among lenders, most follow this format.
Therefore, your mortgage interest is the same for the month of March with 31 days as it is for February when there are only 28 days. In addition, any payment you make this month will not reduce the interest you owe next month, because of that "arrears" thing. It has already been established you will pay your interest rate times .o8 (1/12th of the rate) times your remaining loan balance.
One more basic to keep in mind: most U.S. lenders want to process your mortgage payment only once a month. Biweekly mortgage plans are usually implemented by companies external to your lender, and provided as a service to you (you pay a fee for the service) and to the bank (there are fewer mortgage defaults since the payment is automatically deducted from your bank account).

 

[AllesonWonderland]

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.

My bank is the same way. I found a calculator online that showed that even paying semi-monthly you could save lots of interest...sounded like a great plan. But when I contacted the lender they said they just hold the first half until the second half arrived and applied the whole payment then. Bummer! So, I too just pay once a month and pay extra.

 

[bucket o' butter]

We bought our house in 2003 with a 30 year loan. We have not paid any extra on it. Would it still be beneficial to start paying $50 extra a month or is that advantage gone? I admit, I am not the best math person when it comes to mortgages. I would love to find a way to pay off the loan early. Anyone with any advice would be appreciated. Thanks.

 

[2TxAgs]

Bucket....

I like the mortgage calculators at Bankrate.com

I put in some hypothetical numbers for you: $200k loan, 30 yrs, 6%, starting 11/2003
If you never prepaid a thing, in Nov 2033 your loan would be paid off and you would have paid $231,000 in interest over the 30 yrs.

Then I assumed you started adding $50/month in Nov 2010 (now). Your loan would be paid off almost 2 yrs earlier (Jan 2032 instead of Nov 2033) and your total interest payment would be $217,000 over the life of the loan.

So, YES, by starting today to add $50/month, you will be paid off earlier and will have saved yourself $14,000 in interest.

Not as big a savings as you'd have if you'd started at the beginning of your loan, but still a respectable savings (who couldn't use an additional $14k?)

TxAg

 

[mrsltg]

We do the bi-weekly payments. However, make sure your lender properly applies them. No joke - when we started doing this five years ago, our lender did nothing with the money. When I say nothing, I mean NOTHING. It wasn't credited to our account in any form. We didn't check our statements because we pay electronically and the money was being debited from our account. We received a call when were 90 days passed due. We had no idea what the collections department was talking about. We were told that since we didn't designate the extra was to go to our mortgage payment (as opposed to... ) they held the money and reported us for delinquency! Happily, we now have a different lender and this has never been a problem. Just check to be sure...

 

[Tink-n-MrIncredible]

We bought our house in 2003 with a 30 year loan. We have not paid any extra on it. Would it still be beneficial to start paying $50 extra a month or is that advantage gone? I admit, I am not the best math person when it comes to mortgages. I would love to find a way to pay off the loan early. Anyone with any advice would be appreciated. Thanks.

Butter

In my opinion any extra you can add would be beneficial. I would not just do $50, I would take my monthly mortgage divide the number by 12 and add that amount (if it is in your budget) or more if its under the $50 you stated in the post above. That way you could at least make an extra payment a year. Just my .02.