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ackee66 | I have been told by friends that paying my mortgage in 2 parts will allow me to complete payments quicker.? |
$6000 per month vs 2 payments of $3000 per month ( ist and 15th of a month |
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stevexnelson
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I believe this is true. Check with your bank to make sure they allow it.
Good luck. |
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MoneyMonkey
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Wrong. They mean if you pay every two weeks instead of once a month you will get it paid faster. That's because you would be making an extra payment every year, since there are 26 two-week periods in a year, which would be 13 payments.
It's a good plan, but most mortgage companies won't allow partial payments without a fee. Some not at all. Divide your mortgage payment into 12, and next time you make a payment, add that amount as "extra principal" ... If your mortgage payment is $1200, add $100 each month.
If you have any other debt, like Credit Cards... pay them off first. Always get those CCs paid off and stop using them. Credit cards are what keep most people from living within their means, staying on a budget, and getting out of debt.
Once all other debt is paid off, then start adding money each month to your mortgage payment until it's paid. That's what I've done and my house will be paid for this summer. I had no other debt, so if I got any extra money, I always put it with my mortgage payment as "extra principal" and am paying my house off very early. |
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Renee E
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if you pay every 2 weeks, not the 1st and 15th, then there will be 1 extra payment every year that will go towards your principal so your mortgage will get paid down quicker without you even knowing. But paying once a month is the same as paying half on the 1st and half on the 15th. |
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terribrooke
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I agree that you should check with your lender to see how this can be done without racking up late fees. If the loan is with the bank, it will also depend on how the teller applies the payment to your account, especially if you end up with an "extra payment" each year like someone stated.
We have special codes that tell how the payment should be applied. If I mark the payment as a regular payment, then the $3000 that you send will go towards your next monthly payment. However, if I mark it as a principal payment, then it takes $3000 off the principal of your loan, but it will still show that you have not paid the monthly payment. |
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STEVEN F
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Your plan will save about 1 month on a 30 year mortgage. The reason 'bi-weekly' plans pay off the mortgage more quickly is that there are 26 2-week periods per year. 1/2 payment every 2 weeks = 13 full payments per year. The extra payment every year does more than the SLIGHT reduction in interest you would realize. |
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hobbit
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I agree with the other respondents that have said if the mortgage company had not agreed to it up front, they do not have to accept your change.
However on signing if you agree to the number of payments a year you can save money. If you keep same total payment a year and pay twice a month vs once a month, you will knock about a year off a 25 year amortization
If you take original monthly payment split it in two and pay every 2 weeks, you will take about 4 years off the mortgage |
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tsopolly
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Renee above is right. Budget to pay every two weeks rather than once a month. One thing you have to make sure of though is that your overage goes towards your principal, and not just towards the next month's payment. There is a difference. |
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Growl
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True but it might actually cost you money. You would save interest on the reduction in principal for half a month. At the beginning of the mortgage this is probably $1-2. If you kept the $3000 in a savings account for half a month it would earn $4-5. Several years later the principal reduction would be greater and at some point it would be beneficial to switch to 2 payments.
Provided always that you keep the mortgage that long enough. On the average Americans change houses about every 5 years. |
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Pembina
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The reason you pay your mortgage off faster with two payments is because of interest charges. You are paying the bank a percentage fee for every day that you have their money.
If I am going to charge you 1% per day (what a rate!) to borrow 100 dollars for 30 days you have two options:
1. Keep the $100 until the end of the month and give me $130 (I'm not compounding since I'm so nice, I mean 1%, c'mon!)
2. Keep $100 for 15 days then give me $65 (half the loan and the interest for 15 days). After another 15 days you owe me the other $50 and 1 percent (.50 X 15 days = 7.50) or $57.50.
In case one you pay me $30 for 30 days use of $100. In the second case you pay me $22.50 a savings of $7.50. Now see the difference that would make on the price of a house. |
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coffeedrinker56
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It's true.
At the start of your mortgage, your payments mainly go to paying interest on the loan, and is calculated on a daily rate. If you pay half every 15 days you're saving the interest on 15 days worth of interest per month on the first half payment.
It probably doesn't sound like much, but over the life of a 30 year loan it will save you tens of thousands of dollars. |
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Fujoshi
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Yes, when you do the math, you end up cutting a bunch of payments off the end of your loan...
It seems like it wouldn't make any sense but it is true...
Also, no matter what you do, 1 payment or 2, ALWAYS throw in an extra amount in to every payment...
Even an additional $10.00 put towards the principle will knock down the payments substantially...
If you have the cash... Throw in as much as you can. Just make sure it gets applied to the principle and not intrest...
The faster you knock down the principle the less you pay in intrest... ANd the faster you pay off the loan. |
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Spock (rhp)
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1. such a scheme has no prayer of working unless it amounts to paying the first $3,000 two weeks early. you can't wait to start it by shorting the next payment $3,000 and sending it in 15 days late -- you'll get the late fees every month and they'll kill the deal.
2. call your mortgage firm and ask them how to make this work with your contract and agreement. some loans prohibit this completely. others will, in essence, save up the first 3,000 to add it to the second 3,000 and you'll gain nothing. [the mortgage firm doesn't like this because they have to process two payments each month and they're only being paid to process one.] |
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