Mortgage payment, twice a month? Anybody do this or hear about this. Looking for some advice. Wells Fargo is offering me to pay my mortgage (well, splitting the payment in half) in two installments per month, so I pay every 2 weeks to cut my interest down and the lengh of my loan. Sounds fishy, anybody?
(I'm not a financial advisor and am also a frist time home owner, so I may be totally off here, but this is my understanding) This is a great idea, and if my lenders would let me, I'd do it for sure. You basically make 1/2 of your payment early, nixing the 15 days of interest that you would pay on it otherwise. So, if your payment of 2,500.00 was due on the 30th: You would pay 1,250.00 on the 15th, and not get charged interest for the 2nd half of the month, then you would pay the balance off on the 30th. You can knock YEARS off of your mortgage payments this way!
is it twice a month, or every 2 weeks? the deal is, you either make 12 montly payments, or if they are every 2 weeks, you make 26 payments, which would be equal to 13 monthly payments. making extra payments on your mortgage makes perfect sense. my wife and i tried to make 3 extra payments per year on our last mortgage, and by doing so, were on track to pay off the house in 12 years instead of 30. If you don't want to do a payment every 2 weeks, just add a little extra on to your mortgage payment and apply it to the principal.
Sounds to me like something that was implemented due to the mortgage crisis. I'm guessing that their thinking is that their loan is a bit more secure due to the lower payment schedule and thus they can offer a bit lower rate because of that.
Yes, this is correct. So I would make one payment at the beginning of the month and one in the middle of the month. They claim it will knock like 9 years off my loan.
Do it. I did this on my old house, basically you have more money going towards principal which obviously leads to paying off your house faster. I wish the mortgage company I have now on my new house would offer it, but they don't. My previous house was mortgaged through Wells Fargo, with the same bi-monthly plan. It does cost you a little to get enrolled in the plan, I think it was $250 but it was well worth it.
Here's one of the resources I ran into when buying: http://mortgage-x.com/library/biweekly.asp After talking to my agent and crunching some numbers, the savings ended up being pretty much the same as staying on a 12 monthly (rather than 26 biweekly) payment schedule and making 1 extra monthly payment a year. It didn't make sense for me to do it because between my biweekly paycheck schedule and my irregular direct withdrawal payments (mortgage, car payment, insurance, phone, bills, etc...), there would be a few periods every year where a few of my direct withdrawal payments would happen all at once and my next paycheck would be a day or 2 behind.
i guess reading comprehension is lacking on this site. i'll spell it out: you. can. pay. extra. principle. on. your. mortgage. without. this. arrangement. if you can put an extra $100/mo towards your principle, it will help. put an extra $300/mo towards your principle, and you will pay off your house in probably half the time, depending on how much your original mortgage is. the rule is, by making just 1 extra payment per year, you can cut your mortgage by roughly 6 years.
And that would be nine years less that you get to claim mortgage interest on your tax returns. This would also lower your current deductions on your tax return as your payment to interest is lower.
Does anyone on this site make enough money to be worried about not paying off their house so that they can claim the interest as a deduction on their taxes? I'm sure there may be a few, but if I can cut 9 years off of my loan and most likely save close to $50k in interest, I'd do it in an instant.
Yeah, most of the folks have already said it. The earlier you can pay off principle and are not charged the extra interest, the better. Even a couple weeks every month makes a huge difference. If you have the solid funds to make each payment, this is a great idea.
Making two payments a month (but same total monthly payment) sounds like it could be a good idea, since you can save on some interest. But, for me, everytime I've done the math, paying extra _principle_ on the loan each month has not made sense. I figure I will come out ahead if I take that extra money and invest it long-term instead of paying down the mortgage early.
Well, this may have been true in the 90's and early 2000's, but the market is terrible right now. I don't think it's currently safe to bet that a stock or money market investment will make more then your interest on your car loan. In addition, unless you're talking about adding to a tax deferred retirement or IRA, you need to factor in the capital gains tax (vs a tax break you would get on paying interest on a loan), as well as first saving for the typical minimum investment requirement on almost all good stock market/money market funds (typically 5k+).
There is no lack of comprehension. Paying extra principle means you pay your full mortgage payment with full interest and then money on top of it. With a bi weekly you pay less interest and more principal. Which makes more sense if your goal is to pay less for borrowing the monees. I like Wells Fargo but I would rather give them less of my money.
It's my understanding (at least with a standard mortgage) that say you pay your mortgage on the 1st of the month, they don't actually apply it to the balance, until the end of the month. I wonder if it's the same way with this? You could get a open-ended HELOC account to use as your own "bank." Pay all your bills from that, and put all your income in it as well. This type of mortgage will allow you (granted if you stick with it and don't take advantage of having so much credit) to pay your house of in half the time. In addition to that, you can also get "open-ended" life insurance policies that you can use as your own bank. Pay money into it, and whenever you need a loan for a car, house improvements, etc, you just borrow it from yourself Of course, all of these options are great in some respects, and dangerous (if you can't resist spending). My $.02
Investing in a mutual fund or a brokerage account to pay for your bills is a much better idea than an "open-ended" insurance policy. With insurance, you run the risk of losing your money with "surrender fees" - and if you don't pay the loan back within a certain amount of time, you'll just end up hurting yourself. Most of what comes out for a loan will be taxable interest income, and since Insurance is not a viable retirement plan (as in, you don't make any money on it, it's left to your heirs to pay the taxes on it when you die) .. well .. I am not sure how loans are taxed on insurance policies, but I know for a fact that Insurance does NOT have capital gains tax. Still, it's better than borrowing from your IRA. Or 401k, which i guess is allowed now (under retirement age = tax @ ordinary income + 10% early withdrawal penalty, due at the end of the year unless you manage to somehow pay it back within the specified timeframe. YEAH. That is how they get you. ) /series 6 and 63 valid licenses held for 3 years. I can has give advice on retirement plans yes?
lol...true. It does depend on the policy for sure. As long as your policy has a guarantee of never going below 1% and maybe has a cap of 9%, then at least you make some interest on the policy. It is just one option for people looking to diversify. And that's why I made the disclaimer, that it can be dangerous if you're not fiscally sound and responsible. Edit* - Obviously, you have more credentials than I do. I'm just sharing experience and what little knowledge I possess. And don't surrender fees, usually drop every year, if your policy has them?
When we purchased our house, the 2 payments per month was a option, and the reason that we didn't do it was our paycheck vs the payment dates. The payments were twice a month (1st and 15th), but we get paid every other week. So the issue that we would run into would be the odd month or 2 a year where all of our payments would fall on 1 paycheck. Ya, ya, ya, if we had less debt, blah, blah, blah. But the point was that we had to enter a short term contract to do it (I think it was every 12 months), just to keep people from jumping in and out of the payment schedule. So we didn't do it just because we wanted to see how the house payments/utils work out every month. But what we did do, was pay a exrta 300-500 every month. Now that we have been in the house and have our bills on a constant level, we are talking about paying 2 times a month. Russ
It depends on the life of the contract, and the product in question. Annuities are my specialty, so I'll tell you about those. There are policies that have surrender fees for as long as 10 years. I can assume that nobody here has a 10 year annuity with little surrender fee. Plus, if it's a variable account, you'll have surrender fees on top of surrender fees (fees on your initial investment, and then fees on top of each amount you pay in every month ... it's all very confusing) SO that is why you are advised to wait until the fees are all gone before you start pulling money out. Insurance policies are a bit different, because, like i said before, you're never supposed to be able to take that money out to live on in retirement - it's for your heirs when you die... so their surrender fees might be a bit different.
Depending on the interest rate of your home loan you'll always be better off investing your extra money instead of paying off home loans faster. Historical returns on the S&P have been averaging about 10% the past decade. That's a huge difference compounded over 30 years. The market may suck right now but it'll come back, it always does. Think of it as buying low. Mortgages are about the only good debt you'll ever have, take advatage of it. Dream, the only reason I'd split the payment up in to two is if it made making the payment easier and it didn't include paying extra.
I would have to disagree with this statement. 6-7% interest on 200k (meaning your house will cost you about 436K over 30 years)...compared to an investment of much less than that at a only a possibility of a 10% return? No thanks. I'd rather pay off the principal faster, and once the mortgage starts winding down, then focus more money on investments. But, you should be investing outside of your mortgage anyway. Always try to diversify your portfolio. But IMO, investing instead of paying down a couple hundred thousand in interest doesn't make sense until it's worth it to do so.
Just to make things clear, I wouldnt be paying any more per month than I am now, just splitting my current payment in half and making one payment on the 1st, and the second on the 15th.
Of course, the simplest way to pay down your mortgage quicker, would be to make extra principal payments each month. Whether it's the extra change in a jug, a bonus from work...extra income. But, you have to make sure to note or write on the check that it's specifically made to the principle. And of course, that means you also have to have that extra money in hand, to spend on an extra principal payment. That's what's kind of interesting about a HELOC or Money Merge Account (MMA). Using a HELOC responsibly, you can cut your mortgage time in half, at least. They use em' all the time in Australia. It's really only something that is just coming to America for some reason. Basically, instead of letting the bank take your money and make money off of it, you're using the bank (HELOC) to save you tens of thousand of dollars in interest by applying all your income to it, and using it for bills. This way your daily interest per month is drastically reduced, along with your principal. You could have 30k in equity using a heloc, in the time you would normally have only 10k in a standard 30yr fixed.
I know every time I need financial advice, the first place I always turn is to motorhead forums on the internet.
Dream, this CAN save you interest, however look into how much this costs you to set up. It's very strange for them to want to set up a semimonthly payment versus the normally seen biweekly payment plan. I can help you run the numbers if you want to PM me some specifics. What I can figure out, is that if you are not paying more on the loan each month, the amortization schedule will just be adjusted to account for the payment plan, and in the end not really gain you much. The biggest issue is the timing of the payments. I think they mostly want this so that you set up an automatic payment, whereas a normal mortgage can arrive anywhere in the first 5 or 10 days of the month to not be late.
Hope you don't have your HELOC through Morgan Stanley :S http://news.yahoo.com/s/nm/20080806/bs_nm/morganstanley_dc
I'm also at 5.75% at Wulls Fergoo. Dream probably showed up late or didn't show up at all during closing so they upped the % rate.
I was watching the coverage of that earlier on CNN. Sorry...it's all I get with basic cable The HELOC can be dangerous if you start deviating from your budget, but it can be great if you stick to your budget and manage it well. I don't have a mortgage...I rent in uptown
First, notice I said depending on the rate. Second, after tax breaks and write offs your rate will be an easy percent or more lower. What's so hard to understand about placing money in to a higher rate investment compared to paying off a lower rate mortgage? Placing your money towards a low interest loan instead of placing it in a higher interest investment is just not efficient. Why not make the money work for you the best way possible? Again, look at the hisrotical returns. A competent financial planner should have no problem getting you in that ball park while keeping your needs in mind.
yes yes read the fine print...:eek3: on my credit card I didn't do that and as soon as had a late payment. My intrest went from 0% to 7% bastards.
Thats not bad, as soon as I bought a house, mine went for 6.5% to 29.99%. Chase's reason, I can't afford to make payments on the house AND credit card ($1500 balance btw).:roll: So jacking my rate went up to 30%, that definitly made things easier for me.:laugh: So long Chase, you no longer get any moneyz from me. Russ
