I received a letter in the mail stating that if I made two mortgage payments a month that I would shave 6yrs off my loan and save myself $52,000. This sounds good as the two payments are roughly my normal monthly payment cut in half. But when I called they wanted $300 to sign up for the program! Does anyone have experience with this? Would I be doing just as good to simply make an extra payment at christmas time?

thanks,

Dave

It's a scam. You can make two payments a month right now without paying anyone for the privilege.

It's kinda a scam. Contact the bank who has your mortgage and see if you can set it up for free. We pay our mortgage biweekly, but we set it up that way when we bought our house and it didn't cost anything. The money comes right out of my paycheck. Making one extra payment at Xmas is almost the same, but make sure you can apply it directly to principal, otherwise it doesn't help much.

Paying biweekly on our 15 year mortgage will pay it off in about 13 years. On a 30 year mortgage, it's about 24 years. Even if the bank refuses to do it for free, it's a good deal if you plan on staying in the house for more than a few years.

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Mike Sellers
It's a scam. You can make two payments a month right now without paying anyone for the privilege.

True, but not all banks will immediately apply the payment and amortize it accordingly. If they don't, it won't save you a dime, and will actually cost you the amount of interest the money would accrue.

I have this program. Basically they collect one or two more payments during the year. This shortens your mortgage from 30 years to 21 (or so) because the additional payments go torwards principle. Their requirement is so that payments are deducted automatically from your checking account.

You can do the same thing they offer yourself by just scheduling payments thru your on-line banking. On the other hand, you pay $300 and you make them worry about making the payments on time, etc. It is your choice.

Me personally, if I did some research before signing up, I would skip the program and just use my on-line banking to make payments. This would save me $300.

Some banks penalize you for making extra payments.

Conatact your bank and ask them what would happen if you made a few extra payments or paid a little more each month.

I know a lot of things have changed through the years, but... Can you still send in extra money at the time the regular payment is due and have all of it applied directly to the principle? I know we were able to do that.

I am using a program like that, but it only cost $90 when I joined up (at least 8 years ago) and that fee was for life.

I have refinanced twice so far, and both times the company took care of reworking the payments for the new mortgage after I made one phone call. I determine when the two payments are taken out (of course I chose payday), they send me a calendar showing the dates they plan to make the withdrawals this year, and after that I don't have to pay a bit of attention to my mortgage payments. They notify me whenever there is a change due to an increase in escrow payments or whatever (for example my property tax goes up every year). Frankly, I love the entire arrangement. Set it and forget it.

(The bank that holds my mortgage wanted a $400 fee for the same arrangement, and it wasn't a lifetime fee).

If that $300 is good for life like my fee was, I would say what the heck just do it.



Edited 1 time(s). Last edit at 06/20/2006 10:28AM by $tevie.

These payment options are for fixed rate mortgages, correct? What options are for adjustable ones?

Kap

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SoCal for now.

Two years ago I refinanced my 30 year fixed mortgage through my bank into a biweekly 20-year mortgage that was designed to be paid off in 18 years (just in time for Little Poochie to enter college!). I locked in a rate of 4.75% over the life of the loan, and the two payments per month are about $30 more/month than my old 30 year fixed rate.

Speak with your lender about getting a 15 or 20 year mortgage if you are paying for a 30 year one. You'll save a bundle on interest...your lender should explain it to you.

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kap
These payment options are for fixed rate mortgages, correct? What options are for adjustable ones?

Kap

When we had an adjustable rate mortgage, prepayment of principle simply reduced the amount owed, but did not reduce the amount of time it would take to pay it off. So, when the payment readjusted each year, it was based on a substantial reduction in the principle amount, but the mortgage was still amortized over the 30 year time frame.

I'd do the prepayment once a year on the fixed mortgage simply because it's easier to keep track of the single prepayment, making sure that it was credited correctly, than a dozen small prepayments.

kap- adjustables are recast periodically, that is usually in conjunction w/ rate adjustments to compute the amortization at the new rate over the remaining term of the loan... any add'l principal payments made are effectively factored in at the subsequent recast. typically adjustables keep recasting periodically over the stated term, so the "trick" on adjustables is to keep making substantially similar sized payments, even though w/ the periodic recasting, the required payment gets significantly lower than the payments you continue to make.

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Sometimes it is what it is...
and then there's times when it's really better.



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We tried to do this at our bank, and they wouldn't let us make the two payments per month. They said, "Oh, you can just make one extra payment a year and that will do the same thing." (as far as shortening the length of the mortage)

But of course, that's an extra payment out of pocket, versus this other method of paying the same over an annual basis (splitting the monthly payments in half) and still saving that interest. Oh well. We still tack some extra on every month.

If you can do two payments per month, I'd say go for it. Check with the bank.

bonzai.buddy: Can't you just send let's say $100 more with each of your payments? When I do that with my bank (HSBC) they apply the extra $100 torwards the principle. It shows on my monthly statement.

I am doing what maurcy is doing. I rounded mymonthly payment up to the next $100. It's close to $100 extra each month and all goes to principal. It will cut a few years off the loan; don't have the figures here, but it will help down the road.

The other consideration is whether you can better use that extra money now. Would you get a better return in an index fund, for example, or in an IRA?

My mortgage was bought out by Chase Manhattan. They set me up on the bi-weekly plan for no fee. I pay half the normal monthly payment every two weeks. This means I am making the equivalent of 13 full payments a year. The extra goes to principal.

I used to do the "round up" and pay extra to principal once a month. Now I get the same effect and don't have to fill out the coupon or mail in the payment. It is direct-debited from my bank account.

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maurycy
bonzai.buddy: Can't you just send let's say $100 more with each of your payments? When I do that with my bank (HSBC) they apply the extra $100 torwards the principle. It shows on my monthly statement.

Make damn sure they're applying it to the principle if you do this! Otherwise, you're just throwing the money away. When I first bought a house, I was making extra payments each month toward the principle, but I had to physically go into the bank and tell them to apply it toward the principle, otherwise they said they would use it to pay off part principle/part interest and adjust my next payment accordingly.

I knew someone who was paying extra each month and would write "Apply to Principle" on the check. He realized after about six months that they were NOT applying it to the principle. They told him writing it on the check was not enough, he had to enclose a note with each check explaining that it was to be applied to the principle...

yes, just pay extra each month but make sure the bank processes it properly.

Something else to consider that if you have a low mortgage rate - which most people do right now - putting extra in each month isn't actually too good of an idea.

If your mortgage rate is say 5.5%, you're only making 5.5% on the money you're putting toward the mortgage. With today's interest rates, you'd be better off putting that money elsewhere.

Also, consider that the average mortgage loan is kept something like 2.5 years. That number is going to increase now that most people are into low rate mortgages..however, the reality is that most people don't stay in their houses for 30 years. Hence, the mortgage rarely gets paid off, except upon sale of the home. If you put and extra $100/mo into your house for say 5 years, and then you end up selling or moving, you'll get $6k more at closing. Big freakin deal - you basically have created nothing more than another savings account which is currently at a low rate. Furthermore, once you have a bunch of equity in your home, you should want to put that to work for you...and to do so, you usually refinance or use line of credit or a 2nd...

at any rate, before putting extra money toward your mortgage each month, consider your long-term plans for that property and whether or not you can get more for your money elsewhere. My rate is 4.5%..hence, putting that extra money into my retirement account (saves taxes) and/or some other investment account makes more sense. If you have other debt that is at a higher rate than your mortgage, putting extra toward your mortgage each month is just silly. That needs to go toward your other debt. If there is a chance you're going to sell that house within the next 10 years, putting extra toward the principal still doesn't make sense...

kiva

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Edited 2 time(s). Last edit at 06/20/2006 01:33PM by Kiva.

Clark Howard talks about this on his radio show all the time. A payment every 2 weeks is a good idea, but set it up yourself. Don't pay any fee for the service.

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kap
These payment options are for fixed rate mortgages, correct? What options are for adjustable ones?

Kap

re-fi …

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$tevie
I knew someone who was paying extra each month and would write "Apply to Principle" on the check. He realized after about six months that they were NOT applying it to the principle.

Well, duh! He should have written "Apply to Principal"

;)

I honestly think that the internet is making me stupid. I never made mistakes like that back when I read books instead of surfing the net. :-(