I send an extra $150 monthly, still seems alittle slow-go. I was given advise it was faster to pay every two weeks, that the interest stops upon payment received (every two weeks) then restarts, therefore you are paying less interest and more goes to principal. So is paying extra, by the month faster, or pay every two weeks??
Or would it make any difference?
2006-08-14 23:24:16 · 10 answers · asked by Anonymous in Business & Finance ➔ Personal Finance
I was always told that making an extra payment a year is the best way. However, my husband and I have a 89,000 dollar loan at the moment with the min. payment being 637 a month. If we only paid that only 55 dollars of our 637 would be going towards the actual prinicple, and thats insane. So we pay 1200 a month on it. The first year is the most important to bring down the principle.
2006-08-14 23:31:20 · answer #1 · answered by rosecrashers1365 2 · 0⤊ 0⤋
A lot of this depends on the age of your loan. If it's a new loan, most of your monthly payment goes to interest, so very little goes to the principle. Even that extra $150 going to the principle won't make much of a dent (that's less than $2000 extra per year). However... it IS making a dent.
The way we do it is to budget 1/2 of the mortgage payment (plus a little extra) every two weeks (we used to have the mortgage company do this, but they charged something like $10 per month for the 'service', which ate up all the interest savings!) That means twice each year, we make an extra 1/2 payment (or one full extra payment each year). This method will cut about 9 years off the life of a 30-year mortgage. Our's is a 15-year mortgage, so it cuts about 6 years off.
The more you pay on the principle, the less interest you pay and the sooner the loan will be paid off. It's really that simple. Just make sure those extra payments are going to the principle, not escrow.
2006-08-15 04:31:15 · answer #2 · answered by homeschoolmom 5 · 0⤊ 0⤋
Most mortgage companies charge fees to set up bi-weekly payments. Interest doesn't start and stop. It is calculated in advance to set up an amortization schedule, but if you pay early or late your total interest paid will fall or rise as appropriate.
Given that they'll charge you extra to convert your payment schedule to bi-weekly, just continue with the extra amount in your monthly payments.
One caution though. You MUST include a note explaining what to do with the extra money you send with your regular payment. Many if not most mortgage servicing companies will dump any extra payments into your impound account if you don't include a note telling them to apply it to principal!
Depending upon what your interest rate and base P & I payment are, an extra $150.00 per month can have a significant impact on the remaining term of your loan and the total interest paid.
For example, if you have a $150,000.00 30 year mortgage at 6%, your P & I payments are about $899.33 per month and you will pay $173.757.28 in interest charges over the life of the loan. If you pay an additional $150.00 every month you will slash 9 full years off the term of the mortgage and save just under $60,000.00 in total interest charges. Contrary to what a clueless poster said earlier, that's a HELL of a lot of ice cream! And over 800 summer days to enjoy it!
2006-08-15 00:53:32 · answer #3 · answered by Bostonian In MO 7 · 0⤊ 0⤋
If you can set it up, weekly is the best way. The shorter the gap, between payments, the greater the result. I know it seems like peanuts, if you do the sums, but it's a compounding interest, and the savings, over the life of the loan, are HUGE.
2006-08-14 23:32:57 · answer #4 · answered by flaming_dog_racing 3 · 1⤊ 0⤋
Depends on your bank/mortgagor. They could charge you for those extra payments. Even a little would be the same amount you would 'save' by the bi weekly payment.
We are talking cents here you save on interest. Monthly is easiest and the extra money you would save on the interest would not buy your family ice-cream on a hot summers day.
2006-08-14 23:31:31 · answer #5 · answered by Puppy Zwolle 7 · 0⤊ 0⤋
How your interest is calculated is in your contract. Generally, the sooner you make the additional payment the faster the principal will reduce.
2006-08-14 23:31:44 · answer #6 · answered by Michael Myklin 3 · 0⤊ 0⤋
It makes a 0,2% difference a year...not a great deal
By the way : good idea to pay $150 extra. This is a good investment.
2006-08-15 00:22:09 · answer #7 · answered by roy_s_jones 6 · 0⤊ 0⤋
check with your mortgage company first, some calculate interest on a daily basis, others monthly.
2006-08-14 23:30:20 · answer #8 · answered by Nimbus 5 · 0⤊ 0⤋
Read some tips and articles on mortgage and loans on this site
2006-08-14 23:30:38 · answer #9 · answered by Elite female 3 · 0⤊ 0⤋
try getting as much details as you cn
2006-08-14 23:34:57 · answer #10 · answered by mortal_sinner 3 · 0⤊ 0⤋