BlueCLS6

Anybody have any experience with bi-weekly mortgage payments instead of the traditional monthly? Reading things such as this:
http://mortgage-x.com/library/bimonthly.htm
makes it seem like a good idea. I already add a little to the principle every month, but this is a substantial difference! Thanks for your input.

Slimey

I don't do it but like the calculators show, it's not a bad idea over the long run. I know my Dad keeps telling me I should.

Of course the absolute return depends on how long you'll stay in the home/how many years you take the mortgage out.

I'm not sure of the advantage of bi-monthly versus adding some extra to principal each month or at end of year...but I'm sure there's a calculator for that.

In the end it's never bad to pay down principal if you're able to do so...however, keep in mind that mortgage interest is one of the few consistent major deductions many have on their personal income taxes. Paying your home off too soon may be a potential tax disadvantage...this will depend on your bracket and other expenses, etc.

doopstr

I don't recall all of the details but I did research on this once and figured out it wasn't worth it.

The first thing you need to realize is that the banks wouldn't offer this if there wasn't something in it for the bank. If I recall correctly there are extra fees involved in this, a setup fee, some kind of per payment fee, and perhaps a slightly higher interest rate.

When people think bi-weekly they think bi-monthly and that's not the case. You will not be making 24 payments a year. There are 52 weeks in the year and that means you will be giving them 26 payments. So with a bi-weekly mortgage you are in effect giving them enough money a year for 13 monthly payments.

So in short, skip the bi-weekly mortgage and just send them an extra monthly payment every year.

BigPimp

It's a bit of a gimmick with a bit of a truth to it. I think that Suze Orman woman started this idea and I am sure she read it somewhere. Yes, there is a charge to set it up and pay it that way but nothing really changes, you just make 13 payments instead of 12 so as doopstr says, skip it and just send in an extra payment or send in additional principal every month equaling 1/12 of the payment thus giving you 13 payments by year end instead of 12. Simple as that.

fdl

Not everyone has the discipline to do that though.

doopstr

Here is good info on how it work.
http://www.realestateabc.com/loanguide/biweekly.htm

Be sure to read the section "No-Cost Alternatives to the Bi-Weekly Mortgage"

BlueCLS6

Awesome info, thanks! Turns out I was already about halfway there (additional 1/12 payment) anyway so I'll just add a little more. I will have some additional income next month from renting out my other room, and some of that is earmarked towards the mortgage.

BigPimp

Then they will just pay their bill as is and the mortgage will be paid off in xx years.

jlukja

If there is any kind of a charge to make it bi-weekly then don't do it. Instead, add 1/12th of your payment to your monthly payment and you'll essentially be doing the same thing.

fdl

Exactly, which is why the bi-weekly option is attractive.

juniorbean

iTrader: (5)

I never bought into it and never will. I just send extra principal every month which is equal to about 1/6th of our payment. Plus I always send in an extra payment in December equivilent to my entire mortgage (but apply it all to principal).

Doing it this way allows me to be flexible with my payments without being stuck with paying every two weeks. I can choose how much extra principal I want to send and when I want to send it... so I prefer that.

Mike 350Z

Who cares? I'd take a 0 house payment and a little more taxes any day over a strapping mortgage just to get a tax break. Right? I don't get why so many people think this way. Is it just because getting that huge refund once a year makes them feel better? Not writing 4 figure checks once a month would make me feel better....

For argument's sake, let's say you pay $1000/mo in interest and you're in the 35% bracket. So you get $350 back, which means you're out $650. Say your house is paid off so you don't have to pay the $1000 in interest so you spend it on something else. You pay the $350 in taxes on it but that's it. You're ahead by $300 (650-350). Am I missing something?

juniorbean

iTrader: (5)

Plus, most people who pay off their primary residence scoop up a rental or vacation property which cost much less (therefore, very little monthly payments compared to primary mortgage)... so still many ways to get deductions on your taxes w/o having a full mortgage.

DanUC

I agree with not being locked into making a payment every other week. However by making an extra payment every year you end up taking 7 years off the life of the loan.