Saturday, 29 November 2008

cheating on a mortgage

i am not sure if this is cheating or not. actually, i am quite certain it isn't. though i have to say, that as the mortgage/financial crisis keeps getting crazier and crazier, i can't help but fantasize that my mortgage company goes under and somehow my mortgage is wiped out and tada i just own my house. we all know that won't happen, but how cool would that be? actually, i probably would be so paranoid that there is no way i would just let it be wiped out. (mind you it is paranoia not honesty that would motivate me... just kidding, of course my honesty would motivate me too)

anyway, last night as i was stressing out about money and homeownership i found a shortcut to paying off your loan. (also, i bet this would work of other kinds of debt too) here is what you do... make half of your payment bi-weekly. so instead of sending in one check (or having one bug chunk deducted) you send 2. one every other week.

this is a calculator that i used to figure out what kind of impact doing this would have on my mortgage...

according to this calculator, just by paying my regular payment each month, but splitting it in half and paying it bi-weekly i take about 5 years off my loan. then if i add just $50 to each payment...that takes another 2 years off...CRAZY!

i am kinda diggin' this idea.

i guess there are some plans that cost money to let you pay bi-weekly. that seems kinda stupid. i am not going to pay money so i can pay money. the internet has alot to say about this... here are the common suggestions around how to do it:

(1) Call your lender and ask them if they can handle a half payment every two weeks. Some can, others will charge you for this service, and still others will flat out decline (or get confused). Assuming that they can handle it, you can (and should) automate the payments through your online billpay.

(2) Pay an extra 1/12th of your mortgage every month. With online billpay, you only have to set this up once. While it’s a good idea to designate that the overpayment should go toward principal, every lender that I’ve dealt with will handle such payments properly even without further instructions.

(3) Open a high-yield savings account and deposit half your mortgage payment into it every two weeks. Make your payments from this account and periodically apply the excess (plus interest) to your mortgage.

Of course, this all ignores the larger issue of whether or not you should pay off your mortgage early in the first place, but… That’s a topic for another day.

this is probably old hat to many of you. i am wondering what your thoughts are one this? please share...

seems like the main thing is that you want to make some purely principal payments to your mortgage each year, either in a monthly overpay or an extra payment periodically. but then there seems to be discussion about if it is actually the best idea to pay the mortgage down OR invest that money elsewhere.

i'd love to hear you thoughts on this...

1 comment:

Amy G. said...

we do the bi weekly payment thing with our car and i don't know why we don't do it that way with our house. probably because the twice a year you have to make three, not two, payments a month would kill us.