Please explain how this will save me $$

[Good Ol Gal]

Excuse my ignorance here...........

Say we pay our mortgage in two payments each month, adding up to the total payment.

ex:if my mortgage is $1000, I pay $500 on the 15th, $500 on the 1st.

I've read that it will save you money, but how??

 

[NMAmy]

I think that what you're thinking of is paying your mortgage payment every two weeks--not necessarily on the same dates each month. If you pay every two weeks, it adds up to more than 12 full monthly payments.

I hope that makes sense.

ETA: For example, this year in January if you paid every two weeks, you'd have a payment 1/1, 1/15, 1/29. That's three payments that particular month. February would only have two payments--the 12th and the 26th.

 

[Kim in TN]

If I understand it right, it has something to do with the interest, if you pay a partial payment thats, that much less money you owe in interest each month. Thats the way I have understood it, I hope that is correct.

 

[dcgrumpy]

If you pay every 2 weeks you are making 26 payments a year which would be the same as 13 monthly payments instead of 12

 

[Parkhopper]

By making a payment bi-weekly (every 2 weeks) you wind up making one whole extra payment each year. (26 payments of 1/2 = 13 whole payments)

Suzi

 

[offwegotoneverland]

Both biweekly and semi monthly (biweekly means you'll make 26 payments not 24 by the way) will save you money because it causes the interest to be capped on the payment date.

So if you have a $100,000.00 mortgage with a $1000.00 monthly payment the 100,000.00 earns int every day for a month say 328.77 at 4% over 30 days the 671.23 goes to the principal. new balance for next month is 99328.77

if you paid semi monthly it would be 15 days at 4 or 164.38 with 335.62 going to prin. new balance is 99664.38

next period interest is 163.83 with 336.17 going to principal...biweekly works even better as the period is always 14 days not sometimes 15 sometimes 17 as with semi monthly...

Hope that makes sense!

 

[Buttercup26]

The best way to "save" on interest is to pay biweekly (every two weeks, ie every other Friday) not twice a month. Indicate on your last two payments that they are for PRINCIPLE only, not interest.

That way you make an extra payment each year that goes solely to your principle and not to interest.

You can acheive a similar effect by paying extra toward principle only each month. For example, if you mortgage was $900 each month, but you paid $1000 - with the extra $100 going to principle, that would actually save you more than paying biweekly (extra $1200 per year instead of $900).

 

[mickeyfan2]

Excuse my ignorance here...........

Say we pay our mortgage in two payments each month, adding up to the total payment.

ex:if my mortgage is $1000, I pay $500 on the 15th, $500 on the 1st.

I've read that it will save you money, but how??

The 500 that you paid on the 15th had 15 less days of interest added to it. Thus you save interest on 1/2 of each payment per month. I believe that a 30 year loan becomes a 22 year loan just by making bi-monthly payments.

Does this help?

 

[Good Ol Gal]

thanks for enlightening me today everyone!!

I am in the middle of redoing our budget to try to include paying our mortgage off early, but we can't just pay bulk payments.... so I am playing with the numbers per say to reduce the interest as much. We can't do the biweekly payments right now which is why I said two exact dates.

The 500 that you paid on the 15th had 15 less days of interest added to it. Thus you save interest on 1/2 of each payment per month. I believe that a 30 year loan becomes a 22 year loan just by making bi-monthly payments.
Does this help?

this makes the most sense to me, and I had no idea that it could reduce your payment by almost 8 years!! Wow!

 

[mickeyfan2]

thanks for enlightening me today everyone!!

I am in the middle of redoing our budget to try to include paying our mortgage off early, but we can't just pay bulk payments.... so I am playing with the numbers per say to reduce the interest as much. We can't do the biweekly payments right now which is why I said two exact dates.


this makes the most sense to me, and I had no idea that it could reduce your payment by almost 8 years!! Wow!

I could be wrong about it being 8 years, but it is in that ball park. Glad I could be of some help.

 

[ksjayhawks]

If you do decide to do this, do it on your own. Don't sign up for a "program" to do it. They will charge you money to get set up and you can do it yourself.

 

[Good Ol Gal]

If you do decide to do this, do it on your own. Don't sign up for a "program" to do it. They will charge you money to get set up and you can do it yourself.

we've gotten paperwork in the mail about signing up for a program and I figured I could just pay 1/2 one time, then 1/2 the next... as long as they get the full $$ by the due date... right

 

[BillSears]

The 500 that you paid on the 15th had 15 less days of interest added to it. Thus you save interest on 1/2 of each payment per month. I believe that a 30 year loan becomes a 22 year loan just by making bi-monthly payments.

Does this help?

Be careful about this not all companies treat it the same. My mortgage company offered a bi weekly payment plan but there was a catch. They did not apply the first payment to your loan balance when it was received. Instead they just held it and didn't apply the payment until both payments were received.

So basically they wanted mt to pay them early and let them collect interest on it for 15 days while still charging me the interest for those 15 days. Plus they wanted to add a $2.00 service charge per payment! I just pay extra towards principle and that's working out fine.

 

[preb]

Is there someplace online that I can plug in my numbers and figure out how much it will save me? We're on a 15 year, so if this method shaves 8 years of a 30 year, will it cut 4 years off a 15 year?

 

[mickeyfan2]

Is there someplace online that I can plug in my numbers and figure out how much it will save me? We're on a 15 year, so if this method shaves 8 years of a 30 year, will it cut 4 years off a 15 year?

Don't know a web site for this. But it will be far less than 4 years, since you will be paying less than 1/2 the interest on your loan. Interest compounds so the longer you have a loan the more interest. I would guess it would be in the 1 - 1.5 years for your case.

 

[mickeyfan2]

Be careful about this not all companies treat it the same. My mortgage company offered a bi weekly payment plan but there was a catch. They did not apply the first payment to your loan balance when it was received. Instead they just held it and didn't apply the payment until both payments were received.

So basically they wanted mt to pay them early and let them collect interest on it for 15 days while still charging me the interest for those 15 days. Plus they wanted to add a $2.00 service charge per payment! I just pay extra towards principle and that's working out fine.

In this case it is only to the banks advantage.

 

[Christine]

My mortgage company keeps offering me a program to do this. Of course they want a fee, which I refuse to pay. I know I can do it on my own, but now that I have my mortgage automatically deducted from my checking account, what other way can I use to put extra money toward principle?

 

[Lynn CC]

When we had our mortgage (we paid it off 3 years ago when I was 40). I paid extra on the principle each month. You can include it with your regular check or send a separate check for the amount you want. Keep it consistant each month and your mortgage will be paid before you know it!

I always doubled the principle payment, which takes a month off the other end of the mortgage. Yes, it was tough when we were younger, but I never missed a month. Our 30 year mortgage was paid off in 16 years.

 

[disneygals]

Go to www.hsh.com They have great calculators there.

Click on the calculator link and they have various ones. The one I use is the payment and amortization calculator. You can enter the amounts you pay now, get a complete print-out of how your payments would be applied to principle and interest. Then you can try other types of pre-paying and see the difference.

Before we refinanced to a 10 yr, I used to just pre-pay a certain amount each month ad ask for it to be applied to principal.

 

[WDWMom]

The best way to "save" on interest is to pay biweekly (every two weeks, ie every other Friday) not twice a month. Indicate on your last two payments that they are for PRINCIPLE only, not interest.

That way you make an extra payment each year that goes solely to your principle and not to interest.

You can acheive a similar effect by paying extra toward principle only each month. For example, if you mortgage was $900 each month, but you paid $1000 - with the extra $100 going to principle, that would actually save you more than paying biweekly (extra $1200 per year instead of $900).

This is what we do. We pay an extra $100 everything month and DH calculated that we would take about 7 years off our mortage.