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jkaduk

jkaduk

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John Kaduk
Does it matter whether you pay your mortgage as soon as you get the bill, or when it is due? I was under the immpression that if you paid early in the month, you would ultimately pay less interest. I am sure there are some financial gurus here who know.
Thanks
 
jkaduk said:
Does it matter whether you pay your mortgage as soon as you get the bill, or when it is due? I was under the immpression that if you paid early in the month, you would ultimately pay less interest. I am sure there are some financial gurus here who know.
Thanks
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No. The following answer for garden-variety mortgages:

The mortgage is written with a monthly payment schedule, which has a due date (say the first of the month) and usually a "grace period" say 15 days after the due date. So long as you pay the mortgage before the end of the grace period, there is no penalty. But since it is due on the first, you get no reward for paying on the second of the month. Technically it is paid late although early in the grace period.

If you do pay it early, say the 25th of the month preceeding the due date, the mortgage company just says thankyou and laughs on the way to the bank. That is entered into the system as the next month's payment with no reward to the mortgagor.

-Skip
 
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John:

Skip is right on. Mortgages normally fully amortize over a perdiod of years (reduce principal to zero). If you're making monthly payments, you can amortize faster by making additional payments. Some folks make 13 a year instead of 12. You can also just make a principal reduction payment. It doesn't really help you with the rate a lot (assuming a fixed rate loan--as a matter of fact, better deal for the lender in many respects, but will get your loan paid down quicker.) If you have a floating rate loan, the payments are computed on the outstanding principal balance; so, your payments would go down assuming rates stayed the same.

Dave
 
jkaduk said:
Does it matter whether you pay your mortgage as soon as you get the bill, or when it is due? I was under the immpression that if you paid early in the month, you would ultimately pay less interest. I am sure there are some financial gurus here who know.
Thanks
Click to expand...

I believe they do it based on a daily interest rate for the number
of days between payments that you used the money. So if you paid
it early this time and the regular time next time you'd pay less interest
this month and more next month because of the long # of days
between payments.
 
I believe it will make a much bigger impact if you actually pay extra towards the principal with every payment. I believe I heard somewhere that an extra $70/mo on the principle of a 100k loan over the life of the loan would literally SAVE over $100,000 in interest.
 
Greebo said:
I believe it will make a much bigger impact if you actually pay extra towards the principal with every payment. I believe I heard somewhere that an extra $70/mo on the principle of a 100k loan over the life of the loan would literally SAVE over $100,000 in interest.
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I was just going to mention that. My previous mortgage had options every month of how I wanted to pay. Interest only, Interest+some principal, etc.

Problem is, many of us wait and then forget to drop the check off in the mail on time. Or maybe that was just me. :)
 
Greebo said:
I believe it will make a much bigger impact if you actually pay extra towards the principal with every payment. I believe I heard somewhere that an extra $70/mo on the principle of a 100k loan over the life of the loan would literally SAVE over $100,000 in interest.
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Can I print this and show it to the boss? "See, Honey, with the interest we've saved, well, we practically can get an airplane for free." :yes:
 
You can shorten the length of the mortgage and, if you have no prepayment penalties, the overall cost by paying extra to the principal. If you do so, do it in a separate check marked "PRINCIPAL ONLY PAYMENT". Leave no doubt.
Most companies would assume any overage in a onepayment check to be applied first to any outstanding balance (like escrow or fees) before applying it to the principal. There are few companies that would deliberately do something to favor you over them.
 
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Bill Jennings said:
Can I print this and show it to the boss? "See, Honey, with the interest we've saved, well, we practically can get an airplane for free." :yes:
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Oh yeah... That will work!
 
Greebo said:
I believe it will make a much bigger impact if you actually pay extra towards the principal with every payment. I believe I heard somewhere that an extra $70/mo on the principle of a 100k loan over the life of the loan would literally SAVE over $100,000 in interest.
Click to expand...

Which is why we always round our payment up to the next nearest $100. $1438 become $1500. Makes the math easy in the checkbook and pays off the loan a little faster, every month.

And, to John's point about a separate check, our mortgage statement clearly shows that Chase credits the "extra" we pay each month as an extra PRINCIPAL payment. Thanks, Chase, for treating us honestly!
 
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Some Companies offer bi-monthly payments which will pay off the loan faster and lower the interest you pay by lowering the principal faster. You have to ask for these, most companies don't advertise these loans. Instead of say, one $1500 payment, you make two $750.00 dollar payments on the 1st and 15th.
 
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when rates are this low, is it still best to pay off notes if you have spare cash?
 
Troy Whistman said:
Which is why we always round our payment up to the next nearest $100. $1438 become $1500. Makes the math easy in the checkbook and pays off the loan a little faster, every month.

And, to John's point about a separate check, our mortgage statement clearly shows that Chase credits the "extra" we pay each month as an extra PRINCIPAL payment. Thanks, Chase, for treating us honestly!
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By rounding up as you have described I have reduced the principal in a manner equal to a rate of almost 2 points less. An extra $55/month goes a long way.

And to answer the question, with these low rates I don't think it's a good idea to pay off the note. Especially since RE is appreciating so dang fast.
 
Pay extra each month toward principal.... but make absolutely sure that the bank credits it. The default is to just credit it toward the next payment amount. I had to fight with MBNAs former mortgage unit once about that.

It really does save.

My mortgage is tracked on a daily basis, so I get an advantage if I pay early. Not all mortgages work that way.
 
wsuffa said:
Pay extra each month toward principal.... but make absolutely sure that the bank credits it. The default is to just credit it toward the next payment amount. I had to fight with MBNAs former mortgage unit once about that.

It really does save.

My mortgage is tracked on a daily basis, so I get an advantage if I pay early. Not all mortgages work that way.
Click to expand...

I've been doing it for 20 years. As a result, what normally would be retired in 2015 will be a retired mortgage in 2007. Wonderful cumulative interest cost reduction over term, but the big savings were in the early years of the origination. The last several years at 3.25%(though currently at 4.125%) have been nice.

HR
 
Let'sgoflying! said:
when rates are this low, is it still best to pay off notes if you have spare cash?
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Are your investments beating your mortgage rate? Most don't, these days.
 
Dean said:
Some Companies offer bi-monthly payments which will pay off the loan faster and lower the interest you pay by lowering the principal faster. You have to ask for these, most companies don't advertise these loans. Instead of say, one $1500 payment, you make two $750.00 dollar payments on the 1st and 15th.
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Read carefully. The ones that I've been asked if I wanted to do this
actually does a payment every other week. So instead of 24 per
year you'd do 26.
 
Greebo said:
I believe it will make a much bigger impact if you actually pay extra towards the principal with every payment. I believe I heard somewhere that an extra $70/mo on the principle of a 100k loan over the life of the loan would literally SAVE over $100,000 in interest.
Click to expand...


folks who get paid every two weeks, direct deposit, can usually do this pretty easily. every year there is one full extra payment.
 
Lawreston said:
I've been doing it for 20 years. As a result, what normally would be retired in 2015 will be a retired mortgage in 2007. Wonderful cumulative interest cost reduction over term, but the big savings were in the early years of the origination. The last several years at 3.25%(though currently at 4.125%) have been nice.

HR
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sweet!!!
 
RogerT said:
Read carefully. The ones that I've been asked if I wanted to do this
actually does a payment every other week. So instead of 24 per
year you'd do 26.
Click to expand...
Correct. This works very well if you are paid on a biweekly basis, otherwise you have to plan for it.

The extra two payments per year really do help pay the loan off early, reducing overall interest expense significantly.

-Skip
 
Bill Jennings said:
Are your investments beating your mortgage rate? Most don't, these days.
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ha ha! It was a rhetorical question Bill. What is the icon for pulling out empty pockets?
 
Let'sgoflying! said:
ha ha! It was a rhetorical question Bill. What is the icon for pulling out empty pockets?
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My avitar?
 
Greebo said:
I believe it will make a much bigger impact if you actually pay extra towards the principal with every payment. I believe I heard somewhere that an extra $70/mo on the principle of a 100k loan over the life of the loan would literally SAVE over $100,000 in interest.
Click to expand...

Wifey and I are very fiscally conservative, and have been pounding on the mortgage as hard as we can. We've been in the house 5 years, and if all goes well, I'll be burning my mortgage next year. I can't even imagine the amount of interest we've saved, I'll have to calculate. But no doubt, it would buy a fine aircraft.

That is why I can't decide to if I should put a bid in on that cute little '56 Skyhawk now, or wait a year and buy something much more expensive.
 
Bill Jennings said:
Wifey and I are very fiscally conservative, and have been pounding on the mortgage as hard as we can. We've been in the house 5 years, and if all goes well, I'll be burning my mortgage next year. I can't even imagine the amount of interest we've saved, I'll have to calculate. But no doubt, it would buy a fine aircraft.

That is why I can't decide to if I should put a bid in on that cute little '56 Skyhawk now, or wait a year and buy something much more expensive.
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Wait a year and have a better idea of WHAT you want to buy. (Pitts?)
 
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