I have an 80/20 mortgage. The second mortgage is at 12.5 % (tell me about it) I wanted to know what the best way to apply extra funds to this acct would be, to principal only, escrow, what? Is an extra payment to the principal better than paying it biweekly (on my own accord). I plan to refinance in about a year. Please advise!
2006-08-05 08:42:01 · 3 answers · asked by Anonymous in Business & Finance ➔ Renting & Real Estate
Assuming you have nothing elsewhere at a higher rate, applying extra payments to principal will pay you 12.5% guaranteed return. Furthermore, since your "normal" principal payments are small, paying an extra payment could do the work of six, twelve, or even more regular monthly payments, and future payments you make will pay the principal down more than they would have.
Payments to escrow are a waste. Making your next payment early just gives the bank your money before it is due. Pay to principal!
PS the lower your total balance when you go to refinance, the better your terms might be.
2006-08-05 10:19:34 · answer #1 · answered by Searchlight Crusade 5 · 0⤊ 0⤋
Since most mortgage servicing companies charge fees to convert to a bi-weekly payment schedule you're usually better off just paying some additional principal along with the regular payment.
Always include a note explaining how to apply the additional payment! Most lenders will apply it against your impounds if you don't tell them what to do and this will do you absolutely no good at all. Always instruct them to apply the additional funds against the principal of the loan!
2006-08-05 15:48:03 · answer #2 · answered by Bostonian In MO 7 · 0⤊ 0⤋
If you are going to refi in a year, why send extra money?
Money sent into principle pays you 0%. Put the extra money into a safety account and maybe earn a little interest on it.
That way if you need it it is there. If something happens to your health or job and you can't refi, you will still have access to the money.
2006-08-05 16:01:37 · answer #3 · answered by Anonymous · 0⤊ 0⤋