Comments on: Mortgage “Half” Payments: How Much Do They Save?

By: Not My Mother

Not My Mother — Sun, 14 Mar 2010 09:50:12 +0000

While the information regarding mortgages only compounding monthly is probably good for your American audience, it would be nice to occasionally see the caveat *in the US* on your entries. It’s not the case overseas and your readership is NOT only american.

By: Tim

Tim — Thu, 11 Mar 2010 20:23:15 +0000

I have my Wells Fargo mortgage take out a half payment on the same day I get paid every two weeks. For the way they apply extra payments, it doesn’t get applied until I’ve put a full payments worth toward it, but the same deposit/withdraw is worth it alone plus the added benefits of finishing up ~5 years earlier with less interest.

By: Shevy

Shevy — Thu, 11 Mar 2010 05:44:31 +0000

Not at all. I was just talking about paying my mortgage (when I had one) weekly. I had a 25 year mortgage but in under 9 years I paid off $30,000 on a $92,000 mortgage. It was totally pertinent to the topic. Plus, I’ve been waiting for a day and a half now for the comment to be approved.

By: Nicole

Nicole — Thu, 11 Mar 2010 01:58:50 +0000

Did you use a naughty word?

By: Shevy

Shevy — Wed, 10 Mar 2010 22:29:28 +0000

Just tried to repost my original post from yesterday morning that’s still in moderation and it went for moderation *again*! I’m really frustrated and would like to know what’s going on. There’s no link or anything else weird in it and I’ve been able to post comments on other posts and to post a shorter comment asking about moderation yesterday.

By: Gordon Fitzgerald

Gordon Fitzgerald — Wed, 10 Mar 2010 17:28:30 +0000

The only real advantage to paying every two weeks is being able to budget equally with each paycheck. If you want the same result of a biweekly payment you can simply get a 25 year fixed mortgage vs. a 30 year fixed mortgage. Since there is no interest benefit you can always make a payment on your own when you receive your 26th and 52nd paycheck of the year.

By: littlepitcher

littlepitcher — Wed, 10 Mar 2010 13:39:34 +0000

Any reason that mortgage couldn’t be negotiated to 25 or 20 years?
Similar effect, lower interest rate.

By: Jon

Jon — Wed, 10 Mar 2010 01:11:19 +0000

Trent – it seems as though the difference you’ve outlined is not so much the result of paying every 2 weeks versus paying 2 times per month, but rather than difference is that in the 2 week model you are paying MORE in principal – an extra payment each year – which reduces the compounding effect on the interest much faster. A similar savings could be made by simply paying one extra payment per year on your mortgage, regardless of whether you worked that in by allocating into two week blocks or just paid a double payment on Dec 31st each year. Sound correct?

By: LMoot

LMoot — Wed, 10 Mar 2010 00:32:34 +0000

I don’t plan on prepaying my mortgage only because this is my first house and I don’t plan on being in it long enough to reap the benefits of paying my mortgage early. They’re already holding 20%+ of the cost, in my money, in equity-that’s enough. I got a fixer upper and that money will be better spent fixing up the house (which raises value so that I don’t have to put more of my money in to raise equity, without raising value) and putting as much towards retirement. I only think prepaying the mortgage really is only worth it if you think you’ll be able to stay in the house for at least a few years mortgage-free.

By: John S

John S — Tue, 09 Mar 2010 22:34:49 +0000

Yes, Faculties, any deduction is only valid if you’re itemizing more than the standard deduction, this is true. However, the vast majority of homeowners have plenty of other tax deductible expenses (property taxes, depreciation, child care, charitable donations, etc,) which put us well over the standard deduction threshold.

If you’re under the threshold, then good for you; that means you’re benefitting from the standard deduction in all its glory. That’s like getting free money. Enjoy it. Cheers.

By: Faculties

Faculties — Tue, 09 Mar 2010 21:45:58 +0000

To complicate what Kathy F. said at #20, in the last years of your mortgage you may not be deducting the interest. The interest starts out as a large proportion of the payment, and over time the payment is more principal and less interest, or at least that’s the way mine worked. At a certain point the interest was so low that it worked out to be less than the standard deduction; so I wasn’t deducting interest any more.

By: Bill

Bill — Tue, 09 Mar 2010 21:38:17 +0000

We decided against doing this. We do plan on paying off our mortgage early but we put the extra money in to mutual funds instead. Paying down the mortgage doesn’t really reduce risk till it is completely done. We expect it will take us 7 years at our current savings rate to save enough even if the mutual funds don’t produce much. There is some risk here but we’ve been investing for many years.

We probably won’t actual pay off this mortgage anyway. After the kids go off to college we’d like to build a much smaller house. This money will allow us to pay cash for this new land and construction while not having to live in a rental or deal with bankers deciding if we are going fast enough.

By: Adam

Adam — Tue, 09 Mar 2010 21:08:19 +0000

American mortgage articles always interest me, as it’s such a different setup here in Canada. I guess the closest comparison is that it seems that all of Canada runs on ARMs (at least to my understanding of ARMs).

Now, for my wife and I, our initial amortization was a 25 year period, but by going with biweekly payments, we’ll actually finish paying it off at around 21 years. Now, this is also on a 5 year initial term, with rates to be negotiated at the end of that.

Currently we’re sitting at around 18 years amort left. If we decide to move, we’ll likely restart the 25 year amort (maybe move to 30, but probably not), but stick with an initial 5 year/bi-weekly schedule.

By: Carey

Carey — Tue, 09 Mar 2010 21:04:06 +0000

Ben – a spreadsheet works best. If you don’t have Excel, try Google Docs.

I just have a row for each month (up to 360 for a 30 year loan) with the following columns: Beginning Balance, Interest, Principal, Ending Balance.

Just set Beginning Balance to the Ending Balance from the previous row (the first one should be set to the opening balance of the loan).

Interest (if calculated monthly) can be calculated as that row’s Beginning Balance / 12 * interest rate.

Principal is your monthly payment (P&I portion only, no escrow) minus that row’s Interest.

Ending Balance is that row’s Beginning Balance minus that row’s Principal.

To play around with it, change the formula for Principal to add, say, $100 a month, or 1/12 of your payment. Then just look for the row that has a 0 or negative ending balance, and that is the month that the loan will be paid off.

By: Ben

Ben — Tue, 09 Mar 2010 20:53:22 +0000

I was wondering if someone can tell me how to calculate this out for my own mortgage?

Thank you.

By: Kathy F

Kathy F — Tue, 09 Mar 2010 20:45:44 +0000

Kevin said: “A guaranteed 6.5% tax-free return is looking pretty good right about now.” Keep in mind that 6.5% return may be reduced if the person claims mortgage interest as itemized tax deductions. Thus if the owner is in the 25% tax bracket and itemizes the interest as deductions from taxable income, that mortage is only costing them (1-0.25) x 6.5% = 5.06% interest and even less if you factor in any state tax. For example, my mortgage of 4.75% is really only costing me 3.29% (considering 25% Fed and 5.75% state income tax) as long as I am able to itemize.

I am also a federal employee (EPA) and get paid every two weeks.

By: Dawn

Dawn — Tue, 09 Mar 2010 20:36:02 +0000

When we got our mortgage, we got an interest rate deduction, and a shorter mortgage (25 v. 30 yrs) for doing this. Plus, if, for whatever reason, it doesn’t quite work out to being 25 years (in Trent’s calculation, I think there was a partial payment left), the bank agreed to forego any other payments. Quite frankly, it isn’t hard, it’s pretty easy and works well with our finances.

By: Carey

Carey — Tue, 09 Mar 2010 20:19:34 +0000

There is almost no advantage to paying twice a month because a) 99% of loans have interest calculated on a monthly basis. It is VERY RARE to have a mortgage with daily interest; and b) The interest savings is negligible. Trent gives a figure of $2,931.33 (which I assume is over the life of the loan), but that seems a bit high. My own calculations put it at about $90.00 (over 30 years). I’d like to see that spreadsheet.

As for paying bi-weekly, that works just as Trent says. Plus, if you’re not paid bi-weekly or your mortgage company won’t accept payments in bi-weekly chunks, you can just increase your payment by 1/12 each month and it will do the same thing. Hopefully, your lender at least lets you do that, and you also have to make sure they apply the excess to principal (and not the escrow account if you have one). If not, as a last resort, just send in an extra payment at the end of the year, and ask for it to be applied to principal.

NEVER pay a third party company to handle biweekly payments for you. The big mortgage companies will do it for free – those third party companies will charge hundreds of dollars (in “set up” fees).

And like others have said, if you have any debt that has a higher interest rate than your mortgage, or any match in your 401k that you aren’t yet taking full advantage of, any extra money should go there first.

By: JoeTaxpayer

JoeTaxpayer — Tue, 09 Mar 2010 19:56:05 +0000

Most Banks will not accept a half payment, and if they do, will likely apply it as a partial payment as if it were received on its due date.
Further, most banks do not apply the payment any differently than an exact on time payment whether it’s received two weeks early or up to the end of the grace period.
As others stated, setting up your own bi-weekly, resulting in 13 full payments per year, is a great idea.

By: Lauren

Lauren — Tue, 09 Mar 2010 19:53:15 +0000

Michelle and Kara, I work for the federal governement (Social Security) and I most definately get paid every 2 weeks. I’ve actually worked for the county and state too, and in every job have gotten paid every 2 weeks.