splitting mortgage payments

**hmcart** · 01-09-2012, 09:38 PM

A couple of my co workers have been bragging about how they have set up their mortgage company to take half a payment every 2 weeks. They are saying that the end up with an extra payment every year so it is paid off faster. Now call me crazy but wouldnt it be a wiser decision to take the money from the extra payment and pay it straight towards the principal or would it automatically go to the principal? Now I personally think the money could be used better to pay off credit cards and other debt before I would add it to my mortgage which I know they both have plenty of but I guess its not my money, huh?

**sinopa27** · 01-09-2012, 10:00 PM

i wouldn't want the stress of a mortgage payment every 2 weeks. I believe it is the same if you make an extra mortgage payment a year. In January.....make 2 payments. Or is it that simple?

**mndtrp** · 01-09-2012, 10:25 PM

The theory is your money is being applied every two weeks, which has two benefits: you get an extra payment each year, and you'll pay less interest.

The reality can be a bit different. Some banks hold on to one of your payments, so that it is only applied once a month. This removes the interest benefit. Most of these programs come with a fee, so simply making your own extra payment once a year will work out better.

For what it's worth, you can make your own biweekly payments and end up in the same place, but without the fee. I just add extra to my principle each time I make my monthly payment.

**McD** · 01-09-2012, 10:27 PM

Some banks also charge you for a processing fee on each transaction.

**Nishu** · 01-09-2012, 10:31 PM

I think you're probably putting too much thought into their money, honestly.Without knowing the specifics of their accounts, it's probably hard to say that they're coming out ahead.

I'd say it's more likely that they are though, considering they probably put at least a little research into it. We get paid twice a month so it wouldn't work for us, but if you get paid weekly, I think it's probably a good idea.

**hmcart** · 01-09-2012, 10:36 PM

Thats kind of what I thought. I just thought it didnt make much sense with the amount of other debt these coworkers have. I think they both have it drafted from their accounts and I am not a fan of auto draft. I actually have friends that have alomst all their bills auto drafted to make sure they get paid!

**savvy_sniper** · 01-10-2012, 07:04 AM

My mortgage company advertises the 2 week payment plan. But there is a fee to set it up and a fee each time you make a payment, blah, blah, blah.

We simply add an additional amount to each monthly payment that is applied to the principal. Doesn't cost any anything.

Originally Posted by hmcart

A couple of my co workers have been bragging about how they have set up their mortgage company to take half a payment every 2 weeks. They are saying that the end up with an extra payment every year so it is paid off faster. Now call me crazy but wouldnt it be a wiser decision to take the money from the extra payment and pay it straight towards the principal or would it automatically go to the principal? Now I personally think the money could be used better to pay off credit cards and other debt before I would add it to my mortgage which I know they both have plenty of but I guess its not my money, huh?

**Greebo** · 01-10-2012, 10:16 AM

Originally Posted by hmcart

A couple of my co workers have been bragging about how they have set up their mortgage company to take half a payment every 2 weeks. They are saying that the end up with an extra payment every year so it is paid off faster. Now call me crazy

You're crazy

but wouldnt it be a wiser decision to take the money from the extra payment and pay it straight towards the principal or would it automatically go to the principal?

The extra payment does go straight to the principal, and the way it ends up working is you make an extra half payment directly to principal about every six months.

Now I personally think the money could be used better to pay off credit cards and other debt before I would add it to my mortgage which I know they both have plenty of but I guess its not my money, huh?

Here, I agree, although one extra pmt a year doesn't slow the snowball too much (generally speaking anyway) and has a BIG impact on the long term mortgage debt.

**Greebo** · 01-10-2012, 10:18 AM

Originally Posted by mndtrp

The theory is your money is being applied every two weeks, which has two benefits: you get an extra payment each year, and you'll pay less interest.

That's the mis-understood theory, yes.

The reality can be a bit different. Some banks hold on to one of your payments, so that it is only applied once a month. This removes the interest benefit. Most of these programs come with a fee, so simply making your own extra payment once a year will work out better.

This, however, is ALSO a misunderstanding. Interest on a mortgage is calculated once a month, so it makes no difference if the payment is applied in 2 parts or 1 part during the month, it's the balance on the 1st that counts for interest for that month.

For what it's worth, you can make your own biweekly payments and end up in the same place, but without the fee. I just add extra to my principle each time I make my monthly payment.

Absolutely - although if you set up automatic payments, many banks (Wells Fargo is one) offer the option of bi-weekly billing setup with no fees.

**McD** · 01-10-2012, 11:01 AM

Originally Posted by mndtrp

For what it's worth, you can make your own biweekly payments and end up in the same place, but without the fee. I just add extra to my principle each time I make my monthly payment.

Not always. Prior to our refi, our mortgage was held by Suntrust. They are a company that charges you to set up the bi-weekly payments & charges you a fee every time they pull your bi-weekly payment.

According to our mortgage statement we received every month, they would not accept partial payments.

**hmcart** · 01-10-2012, 02:42 PM

Originally Posted by McD

Not always. Prior to our refi, our mortgage was held by Suntrust. They are a company that charges you to set up the bi-weekly payments & charges you a fee every time they pull your bi-weekly payment.

According to our mortgage statement we received every month, they would not accept partial payments.

I dont think my mortgage company excepts partial payments either unless they are specified as to where they go( be it escrow, principle, ect.)

**savvy_sniper** · 01-13-2012, 10:22 AM

I just got another advertisement in the mail from my mortgage company to set up a biweekly payment plan. They charge a $375 enrollment fee, you have to let them automatically draft your bank account, AND charge a $1.50 transaction fee every time they do.

We just send extra with each payment that is applied to the principal. No extra charges and we are paying down the principal.

**monkeywrangler71** · 01-13-2012, 04:27 PM

This is an extremely common way to pay your mortgage in Canada, probably more popular than monthly payments. Most people do bi-weekly payments because it is more convenient, as most people receive a bi-weekly paycheque. Banks here are flexible about payment schedules, there is no extra charge for choosing a non-monthly payment.

We have two different types of bi-weekly payment, regular and accelerated. An accelerated payment means that you are making an extra monthly payment each year because you are paying 1/2 of a monthly payment every two weeks. A regular bi-weekly payment just divides a year's worth of payments into 26 portions, so you aren't paying anything extra.

There is some savings on the regular bi-weekly just because the payment is made early, but it's minor - a 25 year mortgage gets paid off a few months early. The accelerated bi-weekly works out to about 6 years off of a 25 year mortgage.

Mortgages here calculate and accrue interest daily, so it makes a difference if you pay early. If American mortgages don't, then an early payment makes no difference.

**Wendy99** · 01-13-2012, 04:59 PM

Normally you can choose weekly, biweekly, semi monthly (1st & 15th) or monthly. I think it depends on their situation how they want to pay. We have debt etc , but we pay bi weekly as well. It's so much easier to budget for the payment - we have it set up so it comes out on our pay day and we know each pay day "x" amount is coming out for the mortgage. Works great for us!

**frugal.lass** · 01-16-2012, 01:50 PM

As MonkeyWrangler pointed out, mortgage practices are a bit different up in Canada. I am paying off my mortgage using an "accelerated bi-weekly" plan so my lender withdraws a payment from my account every other week. I'm only paid once a month at my main job so this requires careful budgeting/planning to make sure the money's in the account when it needs to be but its helping me pay my mortgage down faster.

It sucks that they charge you extra fees to switch to a bi-weekly payment in the US but I guess they want you to be stuck paying interest longer.