mortgage prepayment Options

[sincereone]

I would like to pay my mortgage payment twice a month rather than once a month in order to reduce the number of years that I have left to pay on the mortgage. I know that some people pay one extra payment per year sending a note with the payment asking the bank to apply the extra payment to the principal. I am not able to come up with extra money but can pay take the amount that I normally pay and split it up. My payments are due the first of each month. I was wondering if the bank will know how to apply the money 2 payments or if I send a note what should it say. For the payment due on October 1st, I would like to pay one-half on September 15th and the other half on October 1st. Please advise.

[InvestmentOwl]

I would like to pay my mortgage payment twice a month rather than once a month in order to reduce the number of years that I have left to pay on the mortgage. I know that some people pay one extra payment per year sending a note with the payment asking the bank to apply the extra payment to the principal. I am not able to come up with extra money but can pay take the amount that I normally pay and split it up. My payments are due the first of each month. I was wondering if the bank will know how to apply the money 2 payments or if I send a note what should it say. For the payment due on October 1st, I would like to pay one-half on September 15th and the other half on October 1st. Please advise.

Sincereone:

You can do this a number of ways. One way is to contact your bank or mortgage company and see if they will switch you over to a bi-weekly mortgage. Many will do so for free or for a very small administrative charge. If you do this, you will end up paying one extra payment per year as there are 26 two week periods in a year (52 weeks in a year / 2). Hence you will end up making 13 payments instead of 12 per year (26 /2 = 13 payments). This is an excellent way to accomplish your goal and it can cut years off the term of your mortgage and it may save thousands of dollars in interest charges depending on how long your mortgage is for and your interest rate.

Another less formal way to nearly accomplish the same thing is to make an extra principal payment a few times year when you get extra paychecks in a month (or get a tax refund, etc). For example: If you get paid weekly then about 4 times per year you will get 5 paychecks in a month instead of 4. If you get paid bi-weekly, then about twice per year you will get 3 paychecks a month instead of two. When this happens save out a portion of your mortgage payment and apply it to your mortgage as an extra principal payment the next time you make a monthly payment. Your goal in this case, would be over the course of each year to make sure you paid directly on your principle at least the amount of a single monthly mortgage payment. This assumes your mortgage allows you to send in extra principal amounts when you make a normal monthly payment and most do. As I said this is less formal than changing over to a bi-weekly mortgage, but it has the same long term benefits.

Good Luck.

[sincereone]

Sincereone:

You can do this a number of ways. One way is to contact your bank or mortgage company and see if they will switch you over to a bi-weekly mortgage. Many will do so for free or for a very small administrative charge. If you do this, you will end up paying one extra payment per year as there are 26 two week periods in a year (52 weeks in a year / 2). Hence you will end up making 13 payments instead of 12 per year (26 /2 = 13 payments). This is an excellent way to accomplish your goal and it can cut years off the term of your mortgage and it may save thousands of dollars in interest charges depending on how long your mortgage is for and your interest rate.

Another less formal way to nearly accomplish the same thing is to make an extra principal payment a few times year when you get extra paychecks in a month (or get a tax refund, etc). For example: If you get paid weekly then about 4 times per year you will get 5 paychecks in a month instead of 4. If you get paid bi-weekly, then about twice per year you will get 3 paychecks a month instead of two. When this happens save out a portion of your mortgage payment and apply it to your mortgage as an extra principal payment the next time you make a monthly payment. Your goal in this case, would be over the course of each year to make sure you paid directly on your principle at least the amount of a single monthly mortgage payment. This assumes your mortgage allows you to send in extra principal amounts when you make a normal monthly payment and most do. As I said this is less formal than changing over to a bi-weekly mortgage, but it has the same long term benefits.

Good Luck.

[pba200]

I would like to pay my mortgage payment twice a month rather than once a month in order to reduce the number of years that I have left to pay on the mortgage. I know that some people pay one extra payment per year sending a note with the payment asking the bank to apply the extra payment to the principal. I am not able to come up with extra money but can pay take the amount that I normally pay and split it up. My payments are due the first of each month. I was wondering if the bank will know how to apply the money 2 payments or if I send a note what should it say. For the payment due on October 1st, I would like to pay one-half on September 15th and the other half on October 1st. Please advise.

Here is what I do these days. Since there are several online banking companies these days I have a bill paying account (and a auto savings for xmas in separate acct you can have several). I use the one with the Lion. You can direct deposit into the account exactly 1/2 twice a month and set it up to automatically pay the mortgage from that account. You will earn interest on the money until the check is cut to pay the mortgage each month. Reading one of the other posts if you can get the mortgage company to switch to biweekly payments that might save you a little more. I like the deposit 1/2 the mortgage in the online account every 2 weeks setup the auto pay and then when there is enough send in a principal only payment every 3 to 6 months. You pretty much can set this up on auto pilot.

[sincereone]

Here is what I do these days. Since there are several online banking companies these days I have a bill paying account (and a auto savings for xmas in separate acct you can have several). I use the one with the Lion. You can direct deposit into the account exactly 1/2 twice a month and set it up to automatically pay the mortgage from that account. You will earn interest on the money until the check is cut to pay the mortgage each month. Reading one of the other posts if you can get the mortgage company to switch to biweekly payments that might save you a little more. I like the deposit 1/2 the mortgage in the online account every 2 weeks setup the auto pay and then when there is enough send in a principal only payment every 3 to 6 months. You pretty much can set this up on auto pilot.

[sincereone]

Thank you all very much for the wonderful ideas and strategies. I am looking forward to trying them.