Saving Money Idea

[vermonthiker]

I just found a cool way to save money for homeowners. I've already been paying a little extra per month towards principle (will save you thousands in 30 years), but just found another tip.

 

You can pay your mortgage every week or every other week, instead of every month without paying extra. (for example instead of $1000 every month, $500 twice a month.) Since your interest is based on the amount you owe, you will save money by decreasing the amount you owe. You can do a search online and figure out how much you'd save by switching.

 

Just thought I'd share..

[compassionategirl]

Thanks for sharing.

[neil]

i highly recommend this, too. by making the switch to bi-weekly payments, i'll pay off my 30 year mortgage in 23 years. i think my monetary savings are around $70,000. pretty crazy.

[Kathryn]

You can pay your mortgage every week or every other week, instead of every month without paying extra. (for example instead of $1000 every month, $500 twice a month.) Since your interest is based on the amount you owe, you will save money by decreasing the amount you owe. You can do a search online and figure out how much you'd save by switching..

 

I don't see how that works.

 

Using your numbers, let's say I pay $1000 on the first of the month.

If I switch to paying $500 on the first, and $500 on the 15th, that doesn't decrease how much I owe. In fact, it INCREASES how much I owe after the 1st (by $500). And the $500 that's in my account for a mere 2 weeks longer won't be getting much interest.

[neil]

you're right, paying half twice a month won't help.

 

but instead of twice a month, it's every two weeks.

 

so, you're making 26 half payments a year which equals 13 full payments. (an extra payment every year)

 

another option is to multiply your monthly payment by 13, then divide that by 12 and pay this amount once a month.

 

some mortgage companies charge a fee if you pay early. so you may want to inquire.

 

also, some of the "equity accelerator" services charge an initiation fee and/or a monthly service charge. some advise skipping this by doing it yourself. not too hard if you have online bill-pay with your bank.

[SeaSiren]

I was always taught to pay every 4th week - every two weeks would work out the same.

[Richard]

paying every 2 weeks isn't the same as paying twice a month. Paying twice a month means you make 24 payments. Paying every 2 weeks means you make 26 payments.

[michaelhobson]

You can pay your mortgage every week or every other week, instead of every month without paying extra. (for example instead of $1000 every month, $500 twice a month.) Since your interest is based on the amount you owe, you will save money by decreasing the amount you owe. You can do a search online and figure out how much you'd save by switching..

 

I don't see how that works.

 

Using your numbers, let's say I pay $1000 on the first of the month.

If I switch to paying $500 on the first, and $500 on the 15th, that doesn't decrease how much I owe. In fact, it INCREASES how much I owe after the 1st (by $500). And the $500 that's in my account for a mere 2 weeks longer won't be getting much interest.

 

No, you can't pay half your mortgage payment late. You have to get ahead at some point. Make your $1,000 regular payment on the first. Make an additional payment of $500 on the 15th and then continue paying $500 twice per month. You will save a little interest by always being a little ahead on your payments. Not sure if it's worth it though, Neil's bi-weekly plan is definitely a winner though.

[vermonthiker]

Sorry I should have been more specific. Thanks to everyone who explained it better. You can sign up for a pay every week program or pay every other week program at your bank. That way you are paying down the principle twice as often as you would if you paid monthly. You pay interest according to principle, so as your principle goes down, so does your interest. Since its compounded interested, you save thousands in the long run. Does that make more sense?

 

Also paying a little extra principle goes a long way.....