I just got a letter in the mail today saying I qualified for the Bi-Weekly Mortgage Program (b/c my mortgate was sold). Instead of paying once a month..... I would pay twice a month (If mort was 1000. a month. Then I would pay 500 then 500). It claims to reduce your pay off b/c more goes to the principle. It ask for a set up fee of 195.00 to a CC. Does anyone know about these programs? Has anyone done this? Is it a good idea? Are there any catches I need to know about? To me it sounds like a good idea... what do you guys think? Thanks
Why pay for something you can do yourself? Just add the additional principle payment when you pay your mortgage each month and you accomplish the same thing.
You can do it yourself for FREE!!! What you are basically doing is paying 13 payments per year...NOT 12 payments. You can just pay like $50.00-$100.00 extra towards PRINCIPAL every month and you did the same thing they are going for $195.00... You also have to be informed if they are just "HOLDING" the payment on day 15 till they get the payment due the 1st... If they are "HOLDING" (they make 15 days interest on your money and charge you a fee for doing it)... If the payment is actually made to your MORTGAGE account...that is fine... "Caveat Emptor" (KAH-way-aht EMP-tawr) From The Latin and liberally translated: let the buyer be ware.
It is always a good idea to put extra towards your mortgage principal each month. You will be amazed to see how much quicker your loan will be paid off. Try running an amortization table. There are a lot of free ones on the net. First, enter your current mortgage info. Then, try it with an extra $100 per month. I guarantee you will be amazed. Assuming you do not have a prepayment penalty, adding extra each month is a good idea. BUT, you normally do not need to pay for this privilege. Most statements for mortgages have a place where you can write in an extra amount each month to be applied to principal. It is free. And, by doing it yourself, you retain flexibility. If you are short one month, you do not have to add extra principal to your payment. If you sign up for this program, you lock yourself in to the extra payments. Watch out for frauds. There are a bunch of crooks out there who will collect the money from you every two weeks with the promise that it will be paid to your mortgage holder. Many times the money never gets there. Its bad enough to get ripped off, but to pay a fee to get ripped off is too much. I know of a guy who ran one of these companies in Naples, FL. Within a few weeks of startup, he had a brand new Rolls Royce Silver Shadow. Needless to say, the clients got ripped off big time.
Thanks everyone for you help! I'm going to send my payments in half each month w/an additional full payment towards my principle. Sometimes my blonde really shows...lol I never really thought about paying this way OR ever thought I could. I thougth It had to be the full payment each month. If you wanted to send extra towards the principle you could. Again... thanks
HOLD ON~~~RED LIGHT!!! YOU CAN'T SEND ANY "PARTIAL" PAYMENTS...JUST SEND YOUR REGULAR PAYMENT WITH THE "EXTRA" $50.00 or $100.00 (OR WHAT EVER AMOUNT) WRITTEN ON THE "EXTRA PRINCPAL" LINE... The 2 payments per month is ONLY with a 3rd party...and I'm still NOT sure if they really make 2 payments per month or just "HOLD" it... SORRY IF I CONFUSED YOU!!!
Although there are some advantages to paying a loan off early, like peace of mind and a good saving practice, I don't think it is advisable for everyone. There is a lot of misinformation about these biweekly payments. The main reason that your loan gets paid off earlier is because you are paying more per year in total, it has very little to do with paying less interest because of the increase in payment frequency. If your goal is to pay the loan off early and save money usually getting a 15 year loan is better because it has a lower interest rate. Also I wanted to mention that many people are stunned at the total amount you eventually pay for your house. This is a very bad argument for the simple reason that it ignores that the value of money changes over time. Consider this...on average inflation halves the value of money every twenty years, so you are paying back a large part of your 30 year loan with half dollars! Leveraging real estate can be one of the best investment opportunities if done right. Your basic bet is that the long term appreciation of your property, rent and tax benefits will be larger than the interest on your loan. You are also relying on the fact that your cash flow from rent or your pocket will be enough to cover the monthly payments while you are waiting for the appreciation to happen!
Principal borrowed: $100,000.00 Annual Payments: 12 Total Payments: 360 Annual interest rate: 9.50% Periodic interest rate: 0.7917% Regular Payment amount: $840.85 Final Balloon Payment: $0.00 Note: the following numbers are estimates. See the amortization schedule for more accurate values. Total Repaid: $302,706.00 Total Interest Paid: $202,06.00 I CAN JUST IMAGINE WHAT SOMEONE PAYS IN INTEREST FOR A $300,000 HOUSE...EVEN IF THEY HAVE LESS THAN 6.50%
You can do a combination of the scenarios. If your bank makes you pay for the ability to do semi-monthly or bi-weekly payments.. it's still worth it in the long run. When you said it's to cc... what do you mean? They charge your credit card? Also, are they wanting to set up an auto deduct from your checking account? If so, you normally get .25 off the rate for doing that (if you were to finance right now that's standard practice)... so depending on what your rate is... perhaps you can also consider refinancing right now. Interest rates are at a low I am also guessing that these are direct programs... never agree to let someone else "make your payments" for you. If I were you... I'd first add another partial payment in the mix and see how they post it. If they let you add 500 on the 15th in addition to your normal 1st of the month payment... then just do that As for just how you pay the current mortgage, Here's a little comparison: http://www.atb.com/personal/per_mrtg_save.html pretty good comparison. The mortgage given is only 80k... and Canadians use 25 years not 30 so the interest saved is much more on our side of the border... but it's a good idea of what you can do with the different scenarios. There are online calculators where you can play with the numbers yourself. If you don't have any other debt, then paying back the mortgage is a great idea! My parents are shaving 17 years off their 30 year with a combination of those techniques. They're making semi-monthly payments and they overpay by 25% every month. One thing that's interesting... if you run amortization schedules and look at them... you'll see that your ability to add to your payments NOW (at the beginning of your loan) will really affect the lessening of interest... For those of us who want the ability to get great credit terms but who don't want to choke in debt forever... I agree that rapid payoffs are great for your mental health. You actually see the end of your mortgage.
I don't think I explained my point very well, when you buy property its kind of like you are betting on the spread between your return on your real estate and what you pay towards interest. Generally speaking it is a good bet, meaning often real estate in appreciation, rent and tax benefits beats the interest rate you pay on the loan. It is just plain deceptive to say that you will end up paying 3 times what you borrowed on a house. It is deceptive because it ignores the time-value of money. $1 30 years from now is very different from $1 today. A bank is putting up money today that will be repaid in the future with partial dollars (from the effect of interest and inflation). I guess in the simplest terms I can put it, since inflation roughly halves the value of a dollar every 20 years, if I had a mortgage today of $100,000 and I only made one balloon payment of $200,000 in twenty years then I haven't really lost money even though I've paid back twice as much. And if the house just went up in value faster than inflation, I made money on the deal!
I was reading Clark Howards book and he talked about doing something similar 2 times a month for CC's. The time to pay off was amazing! Just using the minimum payment! I never thought of this and I am not blonde!
Thanks Guys for all of your help!!! Sorry it has taken so long to post. I have my mort. w/ Chase Manhattan. I wonder if they have some type of plan or would work w/me if I suggested this to them? I think it would be great if they would lower my rate by 25%.... just to draft the payment out of my account. Has anyone tried this w/Chase?
I doubt they can lower the rate since the mortgage note is recorded and pretty much "set in stone" unless there's something in the note itself about rate discounts for direct debit. Usually a rate change (unless it's an ARM) requires a refinance, which probably would NOT be worth it for a quarter point. Slppryslp- a finance major, were 'ya? You are dead-on with your advice. A lot of folks don't fully examine the time-value-of-money, interest deductability, and property appreciation factors. Some other sage advice - if you have ANY debt that is at a higher APR than your effective mortgage rate (APR of mortgage with the tax-deductability factored in - I think quicken.com has a calculator for that) then you're better off applying the extra payments to your OTHER debts. Another way to look at it - if you have investments earning a higher effective yield (total interest less taxes payable) than your mortgage loan's effective APR, then you're better off investing the extra payment. Good luck, mj
Thanks MJ... I guess I'm lucky!! I don't have ANY debt! Yes... I am debt free and LOVE it! The only debt I have is this new house that I bought in May of this year. Ohhh... and the Orkin Contract....lol
mj, I was a physics major I was one of those sick people who actually derived all of the mortgage formulas. I can't tell you how much it has helped me with mortgages and figuring out which is the best one and how best to structure things. For example one very useful rule of thumb I developed was that on a thirty year loan a 1% reduction in interest rate is equal to a 10% reduction in the loan amount(assuming you hold the loan for 30 years). So if you can get an owner to carry paper beat them up on interest rate, not price. You are absolutely right pay off that high credit card debt first! No tax deduction, no depreciation and a high interest rate, does it get any worse?? Surprisingly it is often better to lease-option a property rather than buy it outright because(depending on the terms you negotiate) you can often limit your risk(by not buying if the market goes way down), gain more equity than through ownership and reduce your monthly payments. Also when you finally do get a loan for that particular property you can often get more favorable terms.
If the program is set up directly with the mortgage company tthere is no fee. The feebased companies get your name and information from the data base of the mortgage sale to the new company. They are a for profit business. In effect, they hold your $$ until the payment is due, and then transmit it to your mortgage holder. They are not licensed, they are not regulated,they are not bonded. If you pay in to them, there is NO assurance they will remit to your mortgage holder.In many cases, they skip town one step ahead of the sheriff,and reopen under a different name somewhere else.They make much of their money by multilevel marketing of their scheme.There have been many cases where people lost their homes from foreclosure because of their diversion of the payments.
