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Extra payments on a mortgage

Glowpun

Glowpun

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Hi,

On a loan if one were to make one or two extra payments a year, by how much time will that shorten the life of the loan?
 
Glowpun said:
Hi,

On a loan if one were to make one or two extra payments a year, by how much time will that shorten the life of the loan?
Click to expand...

Depends on the size of the amount you pay in and whether you are in a penalty period or not as this could add costs back onto your mortgage. Whichever part of the world you are in - have you searched for online mortgage calculators that could help you?

If you're in the US - this website has a calculator that allows you to add overpayments and it helps show the effect on your mortgage.
 
Most "experts" will tell you no but I say yes. I like being out of debt as fast as possble. It may be a burden at first but it has been worth it. For us.
 
If you are going to pay down your principal, may I suggest a seperate checks be written- one for the actualy payment, and a second check for principal reduction marked as 'principal only'.

And, if you are dealing with a mortgage company that goes by the name Nationstar, send every payment certified mail, document every conversation, and refi away from them as soon as you can. Incompetentcy is rampant in that company....
 
every payment made above the established payment schedule should be annotated "apply payment in inverse order of maturity"
that way the amount you tender will be applied to principal only, and you will have documented that intent
caveat: if you do this you cannot later skip a payment and insist that the extra one covered the one now owing

unless you can earn interest on your money at a higher rate than your mortgage (doubtful), and if you have six months after-tax income banked, this is an ideal way to use your extra money to retire your mortgage early. took me 12 years to pay in full my 30 year note
 
justabubba said:
every payment made above the established payment schedule should be annotated "apply payment in inverse order of maturity"
that way the amount you tender will be applied to principal only, and you will have documented that intent
caveat: if you do this you cannot later skip a payment and insist that the extra one covered the one now owing

unless you can earn interest on your money at a higher rate than your mortgage (doubtful), and if you have six months after-tax income banked, this is an ideal way to use your extra money to retire your mortgage early. took me 12 years to pay in full my 30 year note
Click to expand...

That's not bad advice.

I have my mortgage through a bank that offers online payment, where you can specify additional principle payments separately.
I do pay more than the minimum every month.

With that said, I go with a split approach, a bit extra on the mortgage and invest the other money.
I think it's a good balanced way to do it.
 
I've seen online calculators that will tell you how early you will pay it off depending on how much extra you pay, but I don't have a link handy.
 
If you do this... and I personally think it is a great idea... one word of warning:

Don't do what my mortgage company offers. My mortgage company has a plan where a half payment is automatically deducted from my bank account every two weeks, which is the schedule when most people get paid. Which also equates to an extra payment per year. Sounds great and easy, right? But wait!...

They bank the extra money for themselves, and only apply the extra money when a full payment has accrued... once a year.

While you do still get a benefit from this, you do not get as much of a benefit as you would by simply adding an extra 1/12 payment with each regular monthly payment and having it applied to your principle at that time. They make more money off your banked money until that extra payment is finished accruing, and you are not knocking off any extra principle or interest while that extra payment is in limbo. Compounding interest at work here.

Bottom line: Make sure your extra money is applied RIGHT NOW, at the time of payment, not a year from now.
 
radcen said:
If you do this... and I personally think it is a great idea... one word of warning:

Don't do what my mortgage company offers. My mortgage company has a plan where a half payment is automatically deducted from my bank account every two weeks, which is the schedule when most people get paid. Which also equates to an extra payment per year. Sounds great and easy, right? But wait!...

They bank the extra money for themselves, and only apply the extra money when a full payment has accrued... once a year.

While you do still get a benefit from this, you do not get as much of a benefit as you would by simply adding an extra 1/12 payment with each regular monthly payment and having it applied to your principle at that time. They make more money off your banked money until that extra payment is finished accruing, and you are not knocking off any extra principle or interest while that extra payment is in limbo. Compounding interest at work here.

Bottom line: Make sure your extra money is applied RIGHT NOW, at the time of payment, not a year from now.
Click to expand...

Most motgage companies charge a fee for that on top of everything else. Doing it on your own is simple, and you can control when to do it.
 
Glowpun said:
Hi,

On a loan if one were to make one or two extra payments a year, by how much time will that shorten the life of the loan?
Click to expand...

Giving a little bit more every month or making an extra payment will reduce your costs significantly.

Check with your mortgage to see if they offer the plan where you pay every two weeks instead of monthly. I have metlife and they offer it to where they'll deduct your mortgage (or you can send a check like normal) every two weeks, (not twice a month) and that way it makes you spread out your payments and lets you send what is equal to two extra payments every year. Plus you really don't feel the extra amount. If you get paid every two weeks like I do you can even set it to withdraw on the same day you get paid.

Mortgage “Half” Payments: How Much Do They Save? | The Simple Dollar

I think on my mortgage of 150,000 it tallied up hat I would save 35,000 in interest payments. I prefer to do it my way, whee I just send in an extra two hundred dollars on my payments and mark it towards the principle, but thi is a nice way to go also. Bottom line is that it soes save you money unless you have a crooked mortgage company.
 
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