Question for home mortgage savvy maggots

[OSECS]

Anyone have any knowledge or thoughts on bi weekly mortgages ?? Paying half your mortgage every other week.

Thinking about looking into his concept. The wife says it's a way to pay down a loan more quickly.

Management appreciates any insight passed on.

[frozenwater]

In theory she should be right.

You accrue interest on the unpaid principle of your loan. If you have slightly less unpaid principle on your loan (because you paid a portion of it off a few weeks earlier than you otherwise would have) then you accrue slightly less interest.

To really see if it would make a difference put together an amortization schedule and take a look at paying monthly vs. bi-weekly.


---------HOWEVER-----------

There are all sorts of caveats to this. Does your lender calculate interest on the average daily balance, or on some other method. Does your lender have any penalties or fees for paying more than once a month, or are there any other special regulations they have in place.

I really don't know because I am not a mortgage guy.


I do know that if you want to save a ton of cash and you are reasonably close to the begining of your loan adding another 100 bucks or so to the payment will save you thousands in the long term due to lower interest accrued.

[liv2ski]

A bi-weekly payment is pretty much the same as 13 monthly payments a years. That said, take your monthly P&I divide by 12 months and send in the resulting extra bit with each monthly payment as principal reduction. Ends up pretty close in the long haul. If my memory is correct, that will reduce a 30 yr loan down to 23 years. Don't pay to refi on a bi weekly, just do as suggested. If your looking at a refi, go 20 year or better yet 15 years if the payment is comfortable for you. Before increasing your mortgage payments, save at least 6 months income for the rainy day fund is good advice.

[Danno]

http://www.dinkytown.net/java/ExistingBiweekly.html

[fez]

the reason you pay down more quickly isnt because of interest differences, but because you are actually making 13 mortgage payments a year rather than 12.

I do it and it makes things nice and easy. i get paid every other friday, part of my pay gets direct deposited into an account and the mortgage payment comes out a few days later. nice and tidy.

[hutash]

It works well if you get paid every two weeks rather then twice a month. It all comes down to how you manage your money. If you like to just pay all the bills once a month , then a monthly mortgage works better.

Personally, I pay monthly, and just pay some extra when cash is available and get the same effect with out being looked in to the extra payment.

[MMP]

the best way to crush a mortgage is to prepay the principal. Since when you pay your mortgage you pay for the previous month, if when you make your payment, you look at the amortization chart for your loan, and pay the month you are in's principal. By doing this you eliminate half the interest over the course of the loan, which you pay in 15 years. Of course, when the loan starts there is so little principal being paid you essentially have to make 2 mortgage payments a month, and if you can do that might as well get a 15 year loan. It's a good option for someone that needs to qualify at a 30 year term, but has income that cannot be used to qualify, but is perfectly good for paying the loan.

[ECKerry]

If your current mortgage company is offering you this option for a monthly fee, don't do it; just pay extra every month as liv2ski points out. My mortgage company offers to do it for a fee of like $15 each month-- which is totally wasted money. I just add about 10% to my payment each month and it is applied to the principal. Same concept of paying down principal, no commitment to higher payments, no fees paid.

[Lexi-Bell]

What about the loss of a tax deduction when the loan is paid off? We see a pretty nice break at tax time because of our mortgage.

[MMP]

you still get the deduction because you are paying interest the entire time you live there. If you prepay the principal, the interest doesn't have a chance to acrue on the amounts you prepay (which shorten the loan term in actuality). Yes you do lose the deduction once the loan is paid off, but that's the idea isn't it?