We're out of debt and now owe a 140,000 home mortgage-on 30yr note. I've heard biweekly or bimonthly?

Question

payments will speed it up. Any thoughts on this? Should I just send in extra payments and they will apply it? Thanks for your help

Answer 1

Payments on bi-weekly or bi-monthly schedule can only help if the mortgage agreement calculates the interest in such a way as to take in account for these types of payments. Most home mortgage loans don't really work like this.

Here's the way it would work. Let's say your balance is 140,000 and your annual percentage rate is 8%. Most current loans calculate based on a monthly accounting period which is to say they take the balance at the beginning of the month and multiply that by the annual percentage divided by 12. In your case this would be 140,000/(.08/12). This determines the interest owed for this month. Some loans (older ones) did this accounting through daily calculations so the interest rate would be calculated as such: 140,000/(.08/365).

So in the monthly accounting period calculations paying some amount early in the month will not help as the full balance at the beginning of the month is used to calculate the interest owed. In a daily acounting period there is a benefit as there will be a lower balance in the last half of the month and therefore a lower interest amount calculated. However, this amount is generally very small so the final impact to the time to pay on the note is minor.

Now.. I suggest you do this, save all you can, invest where you can, then once a year, make a nice large payment towards the principle balance of your home mortgage. By doing it this way you can the same benefit on interest savings if not more depending upon your investment strategy, plus you'll have the cash on hand if something were to happen and you need a large amount. Instead of going into debt to help in the emergency and incurring a high interest rate (higher than the mortgage) you can use the funds you have.

Hope this helps and good luck!

Answer 2

Paying extra principal is a great idea. That being said, the ONLY benefit to the actual bi-weekly programs is as a budgeting tool. They cost extra money to set up and all they do is send in the extra payment for you.
You can absolutely do this for free just by sending in extra payments (marked to pay the extra towards principal) for free on your own.
Personally I'd say to try and send in the extra on your own for a few months. If you find you're always spending the extra and don't have the discipline to do this on your own, then look at paying the extra couple of hundred to have the other company do it for you. After all if you can budget this yourself, then that's a few extra hundred you can put into the mortgage and save even more

Answer 3

A biweekly payment is simply sending one extra monthly payment every year. In a normal mortgage you would send 12 monthly payment per year. Since there are 52 weeks in a year if you sent in 1/2 of a monthly payment every other week you would have made 13 payment in 52 weeks. While it might not sound a lot that extra one month payment actually cut short your mortgage by months (depending on when you start the biweekly program). If you do that for many years, you can cut short your mortgage by many year.

A lot of banks and lenders will offer to set this biweekly payment service for a fee such as $300. And then they sometimes charge a convenience fee every month. You can take their offer if you want.

However, you can do this biweekly program all by yourself for free. Here is what you do ... Each month when you pay your mortgage you simply include an additional 1/12 of your regular payment. By the end of that year you would have paid one extra month of mortgage. For example, if your payment is $1200 per month, then simply send in $1300. Marking the $100 extra as pre-payment of principal. At year end you would have paid an extra $1200 --a full month of payment.

For more on this see yahoo's David Bach article:

http://finance.yahoo.com/expert/article/millionaire/39312

Answer 4

Do NOT pay a bank to set you up for biweekly or bimonthly payments; it's a scam. If you want to pay extra, by all means, send as much as you like! You'll pay it off much faster and pay way less interest. And there is no fee for this!
Check an amortization schedule (all over the net) to see what payments would be for 15 yrs. It's probably only like $300 more a month and you'd save $150k interest, or something like that.
The bank's pitch to set you up on this plan means you would end up sending one extra payment per year, which would get you ahead slightly. But it's a stupid ploy. Just send as much as you want and it will bring the principle down.

Answer 5

It really would be better to make principal payments early as possible. That way, the daily interest you would owe later would be a lot less. If it is possible, make early payments and extra payments as often as possible but make sure they run as regular payments and not principal payments just in case you're ever in a financial jam. This way, you'll be ahead on your payments and your principal will still go down. So if there is a financial emergency, you won't have to worry about your mortgage payment so much since you are ahead. But still try to keep the early payments going.

Answer 6

Bi-weekly payment are generally faster than monthly due to extra payments being made per year. You can just get a regular mortgage though and make extra payments. Just be sure that the mortgage you sign has no prepayment penalty and that any money you pay above your minimum goes to the principal.

Answer 7

Congratulations!

It is a very good idea since you only pay interest on the amount owed on the loan. Also, it won't cost you any more per-month, but saves a lot of interest paid.

Since the average home costs much more than your $140,000,00 mortgage, either you put a lot down or maybe have been living there awhile. If so, you may want to look at refinancing in a few months since interest rates may go down again. You could refinance at a lower rate and if possible with a 15 year term and it would save you a fortune in interest.

Answer 8

You can send in as many payments as you desire.

If you do send in extra pymts, make sure you note the payment is for principal balance only.

Mortgage companies always have a tendency to apply payments to the next billing cycle or intrest.

Answer 9

Although the lender CAN come back to the borrower for the full amount still due on the loan, in certain instances, that may be changing. All bets are off because of the bailout. Rather than letting your home go into foreclosure, I would recommend checking with your lender first to see if the loan can be re-structured. If your lender won't help, check with other lenders - especially those benefiting from the bailout. I think we will see some relief for homeowners in certain situations. The ground rules are still being made, so pay attention in the coming months.

Answer 10

I don't know what kind of arrangement you have but what I did was to pay extra with each payment that would be applied directly to the principal. It might be possible that your bank doesn't even allow an early payoff. I'd check with them first to see what their procedures are and ask if just paying extra each month and applying it to the principal wouldn't be the best option