Mortgage Question

[momct]

I read something once, how you would save money over the length of your mortgage simply by paying it at the beginning of the bill cycle rather than waiting to the last possible day. The interest amount would be less overall.Does anyone know a way to calculate the difference in total interest paid by doing this?

[limette]

check the bank sites. they usually have a "how to pay your mortgage down faster" calculator.

[lunamama]

What about paying your mortgage every 2 weeks? That helps to speed it up, doesn't it?

[annethcz]

Originally Posted by lunamama

What about paying your mortgage every 2 weeks? That helps to speed it up, doesn't it?

This applies only if your mortgage company accepts partial payments. Many mortgage companies will not accept partial payments. Other companies will accept an every-2-week payment plan, but require that you pay a fee to enroll in a program to allow you to do this.

[sunnysandiegan]

The "secret" to the bi-weekly mortgage plan is you end up making an extra month's payment that way. What we did was divide our monthly payment by 12 and add that much "extra" towards principal each month. No fees, no special plan, no partial payments, same effect. Works like a charm as long as your mortgage company doesn't penalize you for prepayment.

[Kristine233]

Originally Posted by lunamama

What about paying your mortgage every 2 weeks? That helps to speed it up, doesn't it?

Depends on the company. We do this and it sneaks in an extra payment. They also recalculate our interest each time we make a payment. I didn't think it would make much of a difference but after only a few years we've made a large dent in our mortgage already.

[Dandelionkid]

A 25 yr amortization with one extra payment a year knocks off approx 4 years off the mortgage.

[colsxjack]

We live in Canada.
We pay bi-weekly. I think it is pretty common here. And we can pay up to 15% extra on our mortgage each year without penalization or extra costs.

We have just started our mortgage, but from all the advice Ive heard a bi-weekly payment or yearly extra payment is the way to go.

[Caneel]

Originally Posted by sunnysandiegan

The "secret" to the bi-weekly mortgage plan is you end up making an extra month's payment that way. What we did was divide our monthly payment by 12 and add that much "extra" towards principal each month. No fees, no special plan, no partial payments, same effect. Works like a charm as long as your mortgage company doesn't penalize you for prepayment.

We do the same thing, it is better than bi-weekly because the entire amount of the extra payment is going to principal.

[momct]

I do know the benefits of making extra payments, but I am really trying to find out how to calculate the effect of timing your mortgage payment.Does anyone have that info?

[Annie Mac]

Timing of the mortgage payment: I don't see how this would make any difference, except perhaps on the last month of your mortgage if your bank allows you to pay it off early by one month.

First of all, banks calculate the payments you make based on the entire term of your loan. They lend you, say, $100,000.00. They add compound interest to that number for whatever term you have agreed on, say 60 months. They split that number into 60 roughly equal payments. The first payments generally have a (much) higher ratio of interest to principal, so in the beginning, you're mostly paying off your interest, and your real traction on whittling away the principal comes much later. So it doesn't matter if your payment is due on the last day of the month and you pay on the first because all the interest has already been accounted for. It's not like a revolving line of credit in which the interest is calculated anew every single month based on the amount you have borrowed.
The only time it might make a difference is if you are allowed to pay your mortgage off early (ie by one month) without any penalty. In that case, you come into the bank on the 1st of the month, and ask for a payout of the entire remaining mortgage (1 month in this case) amount that usually only includes interest to date, not future projected interest. You pay your final payment, and save 30 days of interest.
Does that make sense?