Paying one additional mortgage payment each year, whether in a lump sum or monthly increments, can lower a 30-year loan down to 18 years. If you pay more than one extra payment, the number of years will decrease even more.
Since this additional payment will be applied only to the principal and not the interest, you end up saving thousands and thousands of dollars once the home is paid off! And it also lowers the total amount of interest the borrower will pay, because it lowers the principal and length of time it will take to pay off the loan. So you save twice with each overpayment. Make sure you have pre-payment privileges in order to save.
By Julia from Boca Raton, FL
This page contains the following solutions.
I have been re-reading Possum Living by Dolly Freed. Her number one thrift tip is to have your house paid for.
Set your sights high. Know what you want, and then use every ounce of your being to get what you want. A number of years ago, my hubby and I decided to buy a house. We found the perfect house for us.
If you are in good standing on your Mortgage payments, many banks will put you on Bi-Saver payments which means that you pay one half of your monthly mortgage payment every two weeks.
To really cut years off your mortgage, make an extra payment a year but do it this way. Say your mortgage payment is 1200/month.
You can pay your mortgage payments bi-weekly, rather than monthly. Two more payments a year adds up a lot of savings over several years. I shaved several years off my mortgage by doing this.
If your mortgage payment is $1200 per month and you normally pay it on the 1st of the month, start paying $600 on the 1st of the month and then on the 15th of the month pay the additional $600.
Reduce the amount of interest you pay on your mortgage payments by simply adding additional principle dollars to the payments you make each month. You don't have to do this every month; you could do it once or twice a year if you receive bonuses or a tax refund.
Here are the questions asked by community members. Read on to see the answers provided by the ThriftyFun community.
I am sending weekly mortgage payments to my lender and sent a request in writing instructing them how much to apply to principal, interest and escrow. They accept my payment but hold it in a suspense account until I call when the next payment is due and tell them to apply it. Every time I call they tell me they do not accept partial payments, yet they hold my money without applying it.
I do this to make it easier to budget weekly, and was hoping to apply money to the principal to get the amount down weekly. Is it legal for them to hold my money in a suspense account even thought I have instructed them how to apply it? Can they refuse these payments legally? My mortgage payment is always on time and up to date. Can you help?Most mortgage companies will not accept weekly or bi-monthly payments unless you sign up and pay them for the privilege. You are lucky they hold the partial payments in a suspense account. Many put the partial payment in the escrow. If you check the fine print in your mortgage paperwork, the monthly payment is covered.
If you wish to pay down the principle faster, add $10 or more to your monthly payment, designating it as extra principle. The will work much better than weekly payments and the mortgage company will accept it without problems.
Oh my goodness... You know, i had thought about doing this before i went to online banking. I had never thought about them not taking the extra payments.
Thanks for the replies. Unfortunately, I guess I did not make myself clear. The mortgage company does not have a "sign up and pay" privilege. As for adding $10 to the monthly payment, I could certainly do that. The point is that it is MUCH easier budgeting out 1/4 of the monthly payment per week than trying not to spend that amount each week, holding onto it to pay the entire amount on the 1st. As for online banking suggestion that is exactly how I am paying right now! The problem is the mortgage company putting the payments in the suspense account instead of appling them to the next months payment.
Most banks and mortage companies will except bi monthly payments when it is applied to the principle.In your post you say you want the mortage company to apply your payment to taxes and interest as well.That may be your problem.When appling extra money to the mortage it should be applied to the principle only.Trying to pay extra money on taxes and interest is costing you money.Also it should be applied just once a month not every week.For example you send in your regular payment on the 1st of the month then a second payment 2 weeks later.I would call back your mortage company and tell or ask them how they want you to make just principle only payments once a month.
We have the same budgeting stratagy, but instead of sending off each check we write weekly, we have a "holding" drawer (or it could be an envelope) where we keep the written checks, and then send them all at one time each month. This will save you postage too.
You could see if they'd let you re-do your mortgage with payments on a weekly basis. My guess would be not, because intrest is generally calculated on a monthly basis. Your mortgage is a contract, and if you want to change it, you might have to go through the process of getting a new mortgage.
It would be better for you to put money each week into some type of savings account... and then pay your mortgage once a month, since your mortgage company wont accept early payments.. At least that way you will be getting interest on your money and also, putting the money aside so you dont spend it.. I use ING, inc... an online bank. I just got a message that any money I put into my account before Apr (I think) I will get 4.75% interest on the savings account. Right now I'm only getting 3.75% with that company... You are not getting any interest on the money you've paid ahead on your mortgage... The bank is just holding it for you without interest... Why do that when you can get another bank to hold it for you with interest.. (smile) Best of luck
PLEASE read this article on bi-weekly mortgage payments. tinyurl.com/
Have you ever heard of the envelope system? This is what my husband and I do every week. We have an envelope for every bill and expense that we have including one for Savings, Emergency, etc. We cash his check every week and put our designated money into it's own envelope. Once you've run out of money in, say your food envelope then you can't go get anymore groceries for that week, if the money is in your mortgage envelope then you can't use it for gas, etc. Hope this helps
Hello!
I am a banker from Northern MN.
Many mortgage companies and independent companies offer a accelerated mortgage payment program, where you make a bi-weekly pmt rather than a monthly payment. With these companies, the also "hold" your money until they have received 1 months worth of payments and then apply it to the mortgage.
You would be far better off putting the money into a savings account and then writing one check per month, or still write the checks each week and put them aside and send in all of the checks when your mortgage payment is due.
Depending on the type of mortgage that you have, it may have a clause in the mortgage document stating that they will only apply your payments on the 1st day of the month!
Many may say that the mortgage company is trying to make a ton of interest off of your money. While that may be true in some instances, most of the time it is an accounting issue and system issue that will only allow the payments to be posted at a certain time of the month. It is also a accounting NIGHTMARE to have hundred of thousands of payments coming in at different times of the month!
Hope this helps!
SAndy
Your heading is a bit misleading. It's not that your mortgage company won't accept payments because they are accepting them. They just aren't applying it to your account because they consider it a partial payment. It also seems that you are standing on principle here because you say it's not a problem for you to pay and additional amount on a monthly payment. You just want to know if it's legal to tell you what they have. For that question, you need to contact an attorney - someone who knows the law.
With that said, this is what I did when I owned a house: I took out a 30yr loan. I used a mortgage calculator and based the loan on a 15yr mortgage. You'd be surprised that it doesn't add much more to the monthly payment. Then I divided that amount by the number of weeks in the month. I transferred the weekly amount to a savings account until it came time to pay the mortgage. Then I transferred it back to the checking account and paid the bill. Within 7 years, I had saved 10's of thousands of dollars in interest payments and my loan officer was so surprised and impressed! I did the same thing for property taxes, insurance bills, etc. I can't tell you how many times it saved my but from coming up short at certain times when all bills came due at the same time! Good luck with your problem. Like I said, if you want legal advice - Your best bet is to pay for an attorney.
Is it legal for them to do this? It probably is -- I will echo previous replies and suggest you get an attorney to answer that for you, if you feel it's worth the expense. Even though it must seem to you like the mortgage company people are just being difficult, I'm sure there's at least a grain of truth to the notion that taking multiple payments each month would quickly turn into a bookkeeping nightmare for them. I agree with previous replies -- stash the money away somewhere on a weekly basis, but give it to the mortgage company only once a month, asking to have the extra applied to principal.
In respect to your mortgage company not being in your state, that doesn't matter as I'm pretty sure if they write the mortgage in your state, that contract must abide by state regulations.
As for pre-paying mortgages, I just left this post in another topic on this site. PLEASE READ before deciding to prepay and make your decision wisely.
In some circumstances prepaying your mortgage is not the best option. Currently, the average 30 yr mortgage rates are about 6-6.5%. If you signed a mortgage in the past few years, you may have a rate as low as 4%
Historically, the return on stocks have been about 10% annually. Additionally, since you get to deduct interest you pay on your mortgage, the actual rate of your mortgage would be about 4.6-5% [based on the 6-6.5% mortgage and assuming a 25% tax bracket].
If you have high interest rate CC's or/and high rates on your car, then pre-pay those off, otherwise invest the money, retirement will come quickly and our life expectencies are growing each day.
I am a Mortgage Specialist and an agent for Equity Corp that handles these types of situations. If you would like to learn more, please contact me via email: caseyquel AT hotmail.com
Read the contract (Note) you signed when you took out your mortgage. Specifically a section headed "Borrower's Rights to Prepay". Not only do some lenders not accept prepayments, some actually charge you for them. That is their right, when we sign agreements we are (and should be) bound by them.
I want to know if there is a way to pay off your mortgage faster. I live in Canada.
Little Princess
I don't live in Canada, but in the U.S.A. I suggest that you contact your bank who holds your mortgage and ask if there is some way that you can pay off your mortgage sooner.
They might be able to juggle your payments so you are paying more money on the principle.
Instead of paying your mortgage once a month, have your bank split that payment in half, and therefore they are getting two payments per month (totaling your one lump sum). Just by doing this, we are shaving off 6 years off the mortgage. They can even have the payments come directly out of your account every 2 weeks. I think that it's because when you pay monthly, there are only 12 payments per year...but when you do it every two weeks, somehow it calculates to one extra payment per year.
I suggest you talk with your banker or whom every you owe to see if you can pay it off as soon as possible.Or read your contract. It might have this info in it. Good luck.
If you contact your banker I can almost guarantee they're going to try to talk you in to a 'program' and they will charge you for it!
Just simply write two checks a month. One for the required payment stating the payment due date in the memo and the other check (for as much as you can pay extra) with 'Towards Principle' in the memo and send in the same envelope.
At the beginning of each year all mortgage companies are required to send you a printout of the previous years payments and balances so double check that your 'principle' payments were actually credited as 'principle'! You can only be charged actual interest on the actual principle due at any given time so you'll be whittling away those charges more quickly than you think if you'll pay at least half, if not a full equal amount your scheduled mortgage payments!
Look at your amortization schedule. If you didn't get one at closing, ask your bank for one, or make one yourself, with the current mortgage balance, interest rate, etc. Lots of programs floating around that you can use. Then, each month, pay your regular principal and interest (escrow?) payment, plus the principal payment(s) on the next few payments -- as many as you can afford. The next month pay the P&I on the next payment (Skip the ones you paid principal only on the month before) plus some more principal payments. This sounds complicated, but it's the same as adding $50-100 extra per payment, and you always know where you stand using the amortization schedule. We did this and paid off a 20 year loan in 9 1/2 years! It was easy at first, but got harder as the principal portions got bigger, which they do every month. Good luck!
Having no mortgage is a wonderful feeling.
Whatever method you choose for early paying of principal, you should not have to pay extra fees to anyone. Ensure by specifically checking (getting a statement for example) that the payments ARE reducing your principal rather than being warehoused or being placed into an escrow account after you've been paying the extra for a few months.
Whatever method you choose for early paying of principal, you should not have to pay extra fees to anyone. Ensure by specifically checking (getting a statement for example) that the payments ARE reducing your principal rather than being warehoused or being placed into an escrow account after you've been paying the extra for a few months.
When we bought our house, we had it in mind to have it paid off in 5 years. No one thought we could do it. Ha - we paid it off in four.
First when we found a bank to do our mortgage, we made sure we could pay back extra each pay day without getting penialized. Second, we put all the funds we could find on the mortgage. We used the Credit Union. (Ottawa, Ontario) We cut down on extras in our shopping, dined out only occasionally, and put all we could down. We had even sold our truck to purchase a smaller vehicle and with the extra money, down on the mortgage.
The way we looked at the situation, we are only young once, and we could work hard and save hard for our goals. We are now mortgage free and are now enjoying spending on us. Yes, spending on the fun stuff.
Good luck to you.
Karyn
I believe Deeli said it best. First, check to make sure there are no fees or penalties for making extra payments to principal. Then write a separate check each month and mark it on your check "for principal only". Some months it might only be $25 but other months might be for a lot more. This is why I did not make it automatic. You never know what each month brings. I paid off a 30 year mortgage in 7 and feel absolutely free!!
Read your loan info and that should tell you if you have early pay off penalties. We pay extra principal every month. We have also done this with our vehicles paying them off 2 and 3 years early what a savings!
I am 48 years old and have 3 boys (16, 13, 7) and a wonderful husband. I have so badly wanted to "get it" when it comes to living frugally, but I get caught up in suburban life and credit line mortgages. Expenses such as music lessons, soccer teams, vacations, clothes, healthy organic foods, restaurants etc. have kept me from our goal of paying off our mortgage, car loan, etc.
I would love to hear about any stories where families have started living frugally "late in the game" and have achieved success. I want the best for my boys regarding school and opportunities as I am sure every parent feels. Thank you to everyone for your support and thank you to this site for providing inspiration.
By jjawt from BC
Hello jjawt, although I am in the UK I think living styles are reasonably similar for me to assist. I live a suburban life but thankfully, I don't keep up with the Jones'. This means I don't aspire to be like others who are happy to spend money on credit and worry about how to pay debts off.
There are many sites and forums for advice, start doing your research. You could start by looking at the need of 2 cars, can you get by with 1? Do your children need to do all the activities? Can you start looking at your eating schedules and change to meal planning and bulking out meals and eating more veg and less meat and cooking from scratch? I use cheap electricity at night to set my washing machine and dishwasher going, is this possible for you?
It takes planning and some time to achieve a cheaper lifestyle but because of the financial situation in the UK and the impact on food prices, fuel etc., I have now given up eating out to twice a month and the cinema nights out are on the back burner for this year anyway. If you look at your life as a whole you will be upset and give up on this new challenge but look at one area first, solve this and move on to the next think - baby steps.
If you would like more information message me. Good luck with your new adventure, I hope to pay off my mortgage early and I have found new fun outings which don't cost a lot or are free. Can this also help you?
It's never too late. I pretty much lived that lifestyle when I was married. I never was an over spender but I certainly wasn't frugal either. When I got divorced at the age of 48 and custody of two teenagers, I didn't have much of a choice. I found it so rewarding when I found a bargain at the thrift store or when I got something free my using double coupons. It's really fun being frugal because you feel so in control of your life.
In my case, becoming frugal has brought so much self esteem and I don't care what other people think. I have a good friend that has always seemed envious of me because I don't have debt. And now that we are seniors, it seems beneath her to ask an establishment for a senior discount. I have a sister that has always told me I'm lucky because of no debt but she does not get it that having a secure lifestyle required sacrifices.
I know you want the best for your kids but doing without one thing or activity for the good of the future is well worth it. It's a good feeling knowing a house is paid off and there is a raining day savings. Sleep comes easy.
For great motivation, try Dave Ramsey. He has radio shows/podcasts that feature call-in listeners who are paying off debt. His books are super! His method is to pay one bill off, take that monthly bill money and put it toward the next bill, etc.
The best way to pay off any debt faster is to make more than the minimum payment every month. BUT: you should pay any amount over the minimum with a separate check and mark on the "For" line TOWARD PRINCIPAL, otherwise they can put that extra money toward interest and it is perfectly legal. If you do this for credit cards, charge accounts, home loans, your mortgage, etc, you will start to see the balance owed drop. If you have to, pay off one debt this way, then the next, etc until you are debt free. Keep in mind that it doesn't have to be a lot of money. Any amount will help drop the balance due.
Thanks so much for everyone's comments. I can't tell how heart warming it is for me to receive feedback and advice on my mortgage question. I actually over pay my mortgage every month but did not know they could put it to interest! Are you sure? I must get to the bank and change my automatic withdrawal, save the money seperately and then put it directly to principal.
Thanks again everyone and for this site. It really helps me stay focused on what is important. Warmest Regards
Jjawt BC Canada
