another mortgage question.

[waggy]

REgtxdi thread made me wonder. first off I'm no expert (OK very little knowledge on mortgages) i have a 30 year fixed rate mortgage. my payment is due on the 25th of each month. I pay it off on the 3rd (i get a paid monthly then) of each month. so 20+ days early.

a buddy of mine says then should get my mortgage paid off in half the time since I'm pretty much getting 240 days of no interest a year. i think he nuts.

heck I'm not sure if it really helps. I'm sure it does though.

so is it even worth it? or should i bank the money for 20 days (the payment is $750 a month)

 

[amdskip]

Uh I hardly doubt that does a thing for you. It's not like interest is added by day. Extra payments for the principal are the only way you are going to get it paid off sooner.

 

[waggy]

Originally posted by: amdskip
Uh I hardly doubt that does a thing for you. It's not like interest is added by day. Extra payments for the principal are the only way you are going to get it paid off sooner.

didnt think it did and yes im overpaying (100 a month. not much but evens out bookeeping heh).

 

[FP]

Be careful with prepayments. If it is the same as a car loan the overage amount needs to be a certain amount to actually be credited to your principal balance. Sometimes it is simply credited as prepayment for the next month (ie your mortgage payment is reduced by that amount the next month) and held in a different account (not yours).

I think you have to write them a note with each overage payment telling them to specifically apply it to principal.

 

[Vic]

Interest on mortgages is calculated per diem (daily) but it doesn't quite work the way your buddy described either. You got the interest credit the first and only the first time you made the payment early. After that, you started making the payments in 30 day intervals, so interest accrues normally, not the way your buddy described. However, the initial credit does compound in your favor, but it's not substantial. Maybe a payment or 2 knocked off at the end, at best.

edit: the OP is not talking about making prepayments of principal.

 

[waggy]

Originally posted by: Vic
Interest on mortgages is calculated per diem (daily) but it doesn't quite work the way your buddy described either. You got the interest credit the first and only the first time you made the payment early. After that, you started making the payments in 30 day intervals, so interest accrues normally, not the way your buddy described. However, the initial credit does compound in your favor, but it's not substantial. Maybe a payment or 2 knocked off at the end, at best.

edit: the OP is not talking about making prepayments of principal.

woot! so i will save enough to get a new lawnmower in 30 years!


i didnt think it was like he said. if so people would do it to get free loans.

 

[FP]

Originally posted by: waggy

Originally posted by: amdskip
Uh I hardly doubt that does a thing for you. It's not like interest is added by day. Extra payments for the principal are the only way you are going to get it paid off sooner.

didnt think it did and yes im overpaying (100 a month. not much but evens out bookeeping heh).

I was referring to that line when I made my prepayment post.

That $100 is probably not going to principal as he would expect.

 

[waggy]

Originally posted by: binister

Originally posted by: waggy

Originally posted by: amdskip
Uh I hardly doubt that does a thing for you. It's not like interest is added by day. Extra payments for the principal are the only way you are going to get it paid off sooner.

didnt think it did and yes im overpaying (100 a month. not much but evens out bookeeping heh).

I was referring to that line when I made my prepayment post.

That $100 is probably not going to principal as he would expect.

it does. we already checked. wich is why i ovperpay.

its a pretty basic loan actually. wich is why i got it. could have gotten a cheaper % (at 6.25 locked) but wanted something that didnt change and no penalties (was offered one that naile dyou if you paid offf early)

 

[Mark R]

It depends on the exact terms in your mortgage contract.

However, the normal way it is done is that the mortgage interest is calculated daily. So, as soon as the money hits your account, the capital is reduced and the interest charge for the next day, and everyday thereafter, is reduced. You're probably paying about $3 per month per $1k borrowed. So, if you pay $750, then you are reducing interest costs by about $0.08 per day - so, because you pay 20 days early works out at a saving of somewhere between $1-2 on each payment you make. Think of it as being equivalent to paying $752 on the official payment date.

Of course, this is dependent on your bank applying interest calculations on a daily basis. Not all do. Some may calculate on a monthly basis, based upon a payment on the official date. [Mine does this. The interest calculation is only made on the payment date. So if I overpay on the day, I get an immediate reduction in interest costs. But if I make a random extra payment, or make payment early, then I don't save any interest unless they decide to recalculate extemporaneously the interest, e.g. the payment is unusually large]

 

[PingSpike]

LOL...if it was that easy who wouldn't be doing that?

 

[mugs]

Originally posted by: PingSpike
LOL...if it was that easy who wouldn't be doing that?

I'd pay mine more than 30 days early, that way they'd owe me!

 

[waggy]

Originally posted by: PingSpike
LOL...if it was that easy who wouldn't be doing that?

thats what i thought. but he was telling me i was wrong.

and who wouldnt be doing that? still a lot of people. look at CC's.

 

[ICRS]

Originally posted by: binister

Originally posted by: waggy

Originally posted by: amdskip
Uh I hardly doubt that does a thing for you. It's not like interest is added by day. Extra payments for the principal are the only way you are going to get it paid off sooner.

didnt think it did and yes im overpaying (100 a month. not much but evens out bookeeping heh).

I was referring to that line when I made my prepayment post.

That $100 is probably not going to principal as he would expect.

Actually it is, All mortgages in the U.S allow this.

 

[xgsound]

Something I've always told my kids is "build good habits". This habit sounds like a good one to me. Don't change it.


Jim

 

[Scarpozzi]

Considering you're still making 12 payments throughout the year on a set schedule, it does absolutely nothing for you. Your amortization schedule will end about 20 days early.

If you want to pay it off faster, use an amortization calculator to figure what your payment would be for a shorter period, or make extra payments... Normally, banks will take an extra payment and apply it to principle, but only if it is not the exact amount of your monthly payment due. (ex. you pay $1000 a month, if you make an extra payment of $1000 they may just bump your due date and not apply it....but it depends on the financial institution and their policies. It's usually safe to make payments of other amounts, like $900 or $999...but you can always call and ask them about their policies.)

 

[waggy]

Originally posted by: Scarpozzi
Considering you're still making 12 payments throughout the year on a set schedule, it does absolutely nothing for you. Your amortization schedule will end about 20 days early.

If you want to pay it off faster, use an amortization calculator to figure what your payment would be for a shorter period, or make extra payments... Normally, banks will take an extra payment and apply it to principle, but only if it is not the exact amount of your monthly payment due. (ex. you pay $1000 a month, if you make an extra payment of $1000 they may just bump your due date and not apply it....but it depends on the financial institution and their policies. It's usually safe to make payments of other amounts, like $900 or $999...but you can always call and ask them about their policies.)

i have talked to them about overpayment adn extra payments. IF its over payment anything over is on principle. a extra payment they asked to call and make sure.

though after talking to people i found my loan is slightly diffrent from most. could be because its through a localy owned small bank and i been whith thema long time.

 

[alkemyst]

The $100 extra you pay is more a factor than paying earlier in the month.

You can put it into an amort. schedule and see how it can impact you.