house payment question?

Question

I heard recently that we would save money or have less interest or
something if we make our house payment in sections throughout the
month (2-4 times/month) . So, what I mean, is if our payment is
$1000/mth, then we would pay $500 every 2 weeks - or $250 each week
per month.

Does this actually help us? Does it change anything?

We got this info from my hubby's sister who was a loan officer of some
type for a short time. But, I'm just not sure if she is correct etc.

Answer 1

Basically, if you make monthly payments, you are making 12 payments in a year.

If you were to, instead, divide your monthly payment in half, and pay every two weeks, eventually you would make one whole extra payment in the course of a year. (This is becuase there are 52 weeks in a year and not just 48.)

If you used this method from the first date you bought the house, it could shave as much as 8 years off the life of your average 30 year loan-- partly becuase you've accumulated about 22 extra payments (almost two years worth) but mostly becuase you save so much in interest. The first years of your loan are almost ENTIRELY interest payments-- so those extra payments go right to the principle and really make a difference.

Answer 2

The theory is that if you make multiple payments, each payment stops the compounding of interest, applying more dollars to your principle. The practicality of it however is questionable. It might save you up to 5 years on payments, assuming a 30 year loan and you never refinance. Paying bi-weekly also allows the bank to collect two extra payment per year. 26 vs. 24. Most banks are happy to set you on a bi-weekly payment plan for a small fee. Pretty much wipes out the savings. At least slows it considerably. An alternative is to look at things from a different angle, consider your long term objectives, retirement, collage for kids, non deductible debt(credit cards, car payments, etc.), Look for a loan solution that pays off the credit cards etc. Put the money you were spending there into retirement, don't spend it, invest it. You will come out ahead at the end of the game.

Answer 3

It amazes me that people can't figure this out.

There are 12 months in a year and 52 weeks. If you pay bi-weekly, you make 26 half-payments, or 13 full payments. Which is one more than if you make 12 monthly payments.

The whole trick here is that a month isn't exactly 4 weeks.

This only works if you are paid weekly or bi-weekly. Because every so often you get an extra check during the month. If you are paid monthly, it won't help you. In that case, you are better off just paying an extra $100 or so a month.

Answer 4

The information got by you is correct since the interest becomes less when paid in part payments prior to the due date of the loan installment. Secondly you can cross verify the same with your house loan dept. directly as well.

Answer 5

PITI (crucial, interest, Taxes and insurance) will be a finished month-to-month price. What takes position is they cost you month-to-month for taxes and insurance and placed that funds into an escrow account which builds by the years until eventually the taxes and insurance is due. In that subject insurance will be your homeowners insurance (or danger insurance). you would have yet another type of insurance it really is PMI (deepest loan insurance) which a monetary agency collects once you've below 20% fairness interior the non-public loan.

Answer 6

She is correct... sort of... It depends on your loan... However for you to see any sort of gain, you would pretty much have to do this every month for the life of the loan. Some states also offer discounts if you do the same thing with your property taxes

Answer 7

Generally speaking yes. The sooner you make a payment, it lowers what you owe. This translates into a lower principle that you owe, which translates into less interest you have to pay.

Answer 8

It will save you on interest you are paying. Its not a huge sum of money at once, but it adds up to alot over 25 years.

Answer 9

Yes, it is true.