Paying Extra Principal on Mortgage Question

That's exactly what occured to me one day, and I wanted to verify that. I wasn't sure if the payment schedule of interest was pretty set in stone, or if it varied each month depending on remaining principal. Thank you very much.

It depends on when you make the lump sum payment.

If the lump sum is made at the end of the year - then making 12 smaller payments throughtout that year would have been batter. You mentioned in your comparison that you would wait to make the lump sum - in that case, the incremental payments would indeed be better.

If the lump sum is made now - it would be better than making the small payments for the next twelve maonths.


Of course, this does not take into account any other debt or investments that could effect the net benefit.

Fact. I think what they are talking about is bi-weekly payments, which would then mean paying 26 half payments (52/2) per year instead of twice monthly or monthly (24 or 12. Two extra payments per year will not only lower the principal owed, but also do it faster as interest is generally calculated monthly. It's a good idea if your interest rate is higher than the current liquid asset investments you have (bank account, money market, short term CD, etc.)
-stubot

I was really turned off by the fact that most banks charge a few hundred $ to use the bi-weekly payment plans. Some of them don't even apply the payment until the end of the month anyway (even though you did pay it early) - negating the interest benefit of paying it early. I just went ahead with an extra principal payment each month to get practically the same benefits.

reybie said: Not meaning to hijack the thread, is there a discussion here on FW about the benefits of semi-monthly mortgage payments? It's an option with the PenFed refi we're doing and I was told it could shave almost 7 years from a 30 year mortgage. Fact or fiction?
Bi-Weekly mortgage payments...

OP, your question has already been answered, and for your second mortgage at a relatively high interest rate, paying it off quickly certainly makes sense. But while we're on the subject...

RANT WARNING!

...these "pay extra on your mortgage" or "pay off your mortgage faster" threads drive me nuts. Here's a related one:

Do you pay extra toward your mortgage each month?

It's simple folks. If you pay more, you are borrowing less, so of course you will pay off the loan faster and "save" interest. Put the numbers in Excel and figure out the math for yourself. Making larger payments every month will be incrementally more significant than making one larger payment at the end of the year. Making one large payment at the beginning of the year will be incrementally more significant than making smaller payments throughout the year. Making payments every two weeks will usually do very little for you because most lenders don't recompute your interest that often. As a matter of fact, it may harm you because lenders always have a way of screwing up partial payments. If you MUST make extra principle payments, just add some amount to your regular monthly payment and be done with it.

But don't get all excited about this as some kind of get rich quick scheme. If paying off your mortgage early is some kind of psychological or emotional victory for you, fine, but it is very often not a very smart financial move. The fact of the matter is that very few people stay in a home for the entire length of their mortgage, so your equations are blown right there. Secondly, you are sacrificing liquidity and adding additional risk by locking up your money in your house versus some other investment vehicle. Third, you are losing the benefit of leverage. The appreciation on your home is the same regardless of your equity. Paying off your mortgage actually drives your ROE down. Remember, the rich get richer by using OPM (other people's money). Fourth...oh, never mind. If you don't get it by now, you never will...

This damn bank always has a bunch problem. Forget to give you check, get your money from
you and did not credit it to you in your account and at last, I billpay my credit card 15 days ago, and it still did not show in my credit card account. When I call them,they said they did not know when it will reach,but anyway, it will reach at last. Damn this stupid bank.

this bank(principal) service is really really bad.