accelerated mortgage patments?

[trof]

Is there a "catch" to doing an accelerated mortgage program?
You make half your monthly payment every two weeks.
I realize that this means you're making an "extra" monthly payment each year, but you're shaving 6 years off of the term, saving several thousand dollars, and building your equity faster.

Any pitfalls here?
Thanks.

[RedEarth]

1. I don't think there is any catch

Be sure and read your mortgage docs and call the mortgage company to ask other questions you might have. If possible and if your mortgage company allows it, try to make additional payments through the term of your mortgage. It is amazing how much can be saved when making extra payments.

[madmax]

2. None that I know

We're doing it and have the payments directly deducted from our checking account.

:hi:

[GOPisEvil]

3. My folks did something similar.

They made two full payments a month, though, when they were able. They paid their house off in 15 years, instead of 30.

As long as your lender doesn't have a problem with it (and why should they), I think it's a smart move.

[Burma Jones]

4. None that I know of.

Any extra principal you pay goes to reducing the term of your loan, and thus, the interest you pay on it. We pay a couple hundred extra per month which goes right to the principal. The accelerated payment option basically does the same thing, but less. If you were to stick an extra $50 or so per month in your mortgage payment, you save a lot in interest in the long run.

Alternatively, if you have the discipline to save a couple hundred a month in, say, an IRA, you do even better. So the only pitfall I can think of is opportunity costs associated with taking potential investment money and using it to reduce what should be your cheapest debt.

[Hubert Flottz]

5. I got the same invite the other day!

I'm paying an extra payment or two a year over my regular payments and it's cutting a lot of time off the end of the loan! There is a lot of Fuzzy math in action these days though! Almost everyone connected to big money uses Fuzzy math nowdaze!

[radwriter0555]

6. Are you planning on living in the house for 20-30 years?

If so, indeed, stepping up the payments ON YOUR OWN, NOT THROUGH A PROGRAM is not a bad way to go.

It makes good financial sense.

However, if you're planning on selling prior to the 20 year term, you wouldn't see much good from it... and would be better off using the mortgage payment to make a modest improvement in the house.

[mac56]

12. Agreed.

You can do it on your own, and not be committed to an accelerated payment plan in case you need to hold back.

Even paying an extra $20 per month to the principal will shorten your term.

[ScreamingMeemie]

7. My neighbor is doing this, and she just lost her income so it's

difficult. MrGrumpy and I chose to got the route of a 15 year mortgage which lowered our rate and only raised our payment by about $200. I personally like paying once a month.

Another note: If you make one extra mortgage payment on principal a year you can cut approximately 7 years off your loan. Bimonthly just didn't seem like a good enough deal for me. Call a loan officer you trust (oxymoron) and discuss your options.

Good Luck,

Laura

[madmax]

8. Two questions to ask your lender

Do they credit your payment on the date payment received or on your regular due date? Ours does, some don't. You save a little more if they credit you on date received. Every penny counts ;)

Are they offering you an 'incentive' such as 1/4% point lower interest rate for automatic withdrawal, free checking, anything? Again some do.

[skippysmom]

9. it depends on your lender

some have prepayment penalties.

We currently add $200 to each monthly mortgage payment for extra principal. I like that it will shorten the term of the loan by about 7 years I'm told, and I like building equity in the house.

[roughsatori]

10. I did it and there was NO catch in the program I used

There was ONE payment of 300 dollars to convert to that program--and the money had to be drawn directly from my bank account every 2 weeks. I did agree to BIG penalties if the money was not there (it always was). It really helped me acquire equity and was the only way as I was not making enough at the time to get a 15 year fixed mortgage. I recommend it to everyone. Read the small print regarding fees and buying out to sell.

[TXlib]

11. It's a rip-off! DON'T DO IT!

They charge you outrageous fees for this.

There's a several-hundred-dollar sign-up fee, and there's a small fee with each payment.

If you want to accelerate your equity build up, pay $50 more with each mortgage payment, and specify it goes toward the principal.

Or, if you have online bill pay through your bank, set your mortgage up, and push your payments out yourself every two weeks. No set-up fees, no parasitic fee for each payment.

DON'T PAY SOMEBODY ELSE ONE CENT OF FEES TO "ACCELERATE" YOUR EQUITY! IT'S A RIP-OFF!

[madmax]

13. I didn't pay any fees.

We dealt with the same bank we've done business with for over 20 years. Perhaps if one uses a mortgage broker (middleman) there are fees. Do the grunt work and you'll save.

You're good enough
And smart enough
And doggone it, I like you :P

on edit: We did this about 3 years ago...maybe things changed.

[curlyred]

15. I did it twice, with no fees, no added anything

at Commercial Federal.

[NJCher]

14. we're all getting these notices

I think they see big inflation ahead with buscho at the helm. They're doing all they can to free up that cheap money.


Cher

[geniph]

16. It depends what other debts you have

If your mortgage is at 6.5%, and you're carrying credit card balances with interest rates in double digits, PAY OFF THE HIGH INTEREST LOANS FIRST. Then pay down your mortgage.

If you're not carrying balances on other loans with higher interest rates, it's always beneficial to pay down the principal on your mortgage; then your equity builds much faster. But pay off higher-interest loans FIRST.

I recently came across a tip for getting debts under control that really works (presuming you can make more than minimum payments). Put your debts in order, lowest balance to highest. Pay the minimum payment on all but the lowest-balance loan. Pay that one off as quickly as possible. Then do the same with the next-highest-balance debt, taking the money you otherwise would have sent to pay the minimum payment on the previous debt and putting it toward this payment. Each time you pay a debt off, take the money you no longer have to send as a minimum payment and add it to the payment on the next debt. So long as you continue to do this and don't incur more debt, this actually will get rid of multiple debts much faster.

For example: say you have $5000 on a Visa, minimum payment of $40, $750 on a personal loan, minimum payment of $30, and $250 on a department store card, minimum payment of $25, plus a car payment and a mortgage. Pay the minimum on all but the department store card, but send $100 a month on the department store card until it's paid off. Then, when it's paid off, take that $100, add another $100, and pay off the personal loan. When it's paid off, take the $200 you were sending for that loan, add another $100, and pay off the Visa. Then add that $300 a month to the regular payment on the car loan.

[Lars39]

18. Cheapskate Monthly recommends this method,

Here's the demo of the rapid debt repayment calculator:

http://www.cheapskatemonthly.com/member_tools_rdrpdemo_rdrpdemo1.asp

Handy little thing. :)

[geniph]

That's it! Thanks, Lars!

That's what I was trying to explain...if you dedicate the SAME amount of money every month, but dedicate the majority of it to the fastest-payoff debt, you can DRASTICALLY reduce your total number of payments and the total interest paid over time.

It's also instructive to see what happens if, once you're debt-free, you take that same amount of money monthly and invest it at even a modest rate of interest.

I've been doing this wrong my whole life, and never gotten completely out of debt, no matter how much money I made. I see a light at the end of the tunnel with this method. It just takes discipline.

[beyurslf]

21. You should also look at interest rates in that though.

A student loan payment of 75 a month with a balance of 7500 and a credit card payment of 100 with a balance of 10000 for example. Pay off the credit card first. You can defer student loans if needed and the interest is lower.

I always say student loans should be the last thing to pay off early. They only help to build credit while young and can be deferred without penalty when needed.

[ProfessorGAC]

17. Nope!

I'm completely sure of this, as well. I'm on the board of directors of a small community bank. We get folks to do direct deposit if we're their Primary Financial Institution. Then, we can handle their mortgage payments with programming. We take half of the monthly payment each paycheck (let's say they get paid 15th and last of month). One of our marketing levers is to tell people that when they have a loan with us, and we pay down this way, it's easier to budget and they save money.

Then, if they just have an extra $50 each month, we recommend they put that on their principal. They get a very quick paydown if they do both.

I have to say that your 6 years early seems a little on the high side. 13 payments a year for 24 years means your 2 years ahead plus the reduction of accrued interest. But, i wouldn't have guessed it would be an extra 36 months. You may be right, but that just sounds a little too high. I would guess more like 45 months ahead, or about 1.75 months for every month you're ahead.

No matter how the math works out, it's always beneficial to pay down early, as long as there's no penalty specifically documented in the loan paperwork.
The Professor

[harper]

19. I'm paying my mortgage down early myself

I got an offer from my mortgage company for a bimonthly accelerated mortgage payment plan by automatic deduction from my bank account. They would set it up for an initial 300 dollar fee plus a small fee per payment.

I decided to do it myself and save the 300 dollars. I pay $100 extra per monthly payment to be applied towards the principle of the loan. That works out to an extra $1200/year.

It does take some discipline to write that check, but I figure I'm saving a lot down the line every time I send in a payment.

[beyurslf]

20. It all depends on the lender.

Never do a mortgage with a pre-payment penalty. That is crazy. You never know absolutly that you won't have to move in a year or 2 or 3. And some penalties are %s of the loan. I have seen people pay 5000 in penalities for closing the loan early.

I work in mortgage lending with a national bank.

Most lenders allow you to make payments this way (twice a monht). One "catch" is when you start the loan, you don't get to "skip" a month before your first payment. The reason is this: say you make payments on the 15th and 30th. Those payments are actually for the next month. So if you refi in April, your first payment is due in June. Doing payments this way, though, you would pay May 15 and May 30 for the June payment.

Most lenders do not charge for this and I would be wary of any lender who did. What else will they charge for? Some lenders do offer incentived for auto draft. Bank of America used to give a .125 point break when you did it. That is not offered now but you do get free checking with a mortgage here. I don't think many lenders are offering the point reduction because rates are so low now.

Most lenders do NOT credit the payment right away. This affects interest which is paid per day. Payments on the 15th and 30th are applied to principal on the 1st of the next month. At the beginning this makes little difference since not much of the payment is principal. Later on, when most the payment is principal, it makes more difference and is not in your favor.


Be wary of any lender who offers closing costs of 399 (think ditech). There are often other costs associated with this loan that are not disclosed right away. Most major institutions will tell you this is what we charge and this is what it pays for. You shoudl expect this or go elsewhere.

I would encourage anyone to attempt to finance 80% or less of the value of the home. This way you avoid private mortgage insurance. This is not hazard insurance. It is insurance for a lender for giving a person more than 80% of the value. It protects them and not you and is a part of your loan payment every month. If you know you borrow less than 80 and they try to charge you that, do not close the loan and report them. It is illegal. If you must have PMI, get an amortization schedule and watch your principal balance. A lender is required to remove PMI when you owe less than 78% of the value. They are given this 2% window which can last months (or even longer). if you know you are under 80% then request that it be removed.

FINALLY: BE PICKY. ASK QUESTIONS. DO NOT ACCEPT ANSWERS THAT DO NOT MAKE SENSE. A mortgage is a serious transaction and you should feel "comfortable" with it.