Saving Big Money With Extra Payments
I was wondering if there is some mortgage calculator that can help me show the following.
I heard that if you make half of your mortgage payment 2 weeks early and the rest of the payment at the end of the month, you can save 1 mortgage payment a year and cut 9 years off of your 30 year mortgage.
In a similar situation I was wondering what would happen if you ended up making the full payment 2 weeks early how much money would that save you.
Another question...If I were to do this AND make and extra payment over a year how much would it save me?
It would be great if someone would point me to the formula so I can put this into excel OR point me to a mortgage calculator that can help me find this out.
THANKS! :-D
[addsig]
I know of one that's out there on the net... Since I don't want to get shot for posting URL's, pm me, and I'll send you the URL...
http://mortgage-x.com/calculators/biweekly.htm
The easiest way to do this is build an excell spreadsheet. Maybe I'll try to post a template in Freebies.
that one does the biweekly, but doesn't let you know the other options asked for in the original topic. there has to be some sort of formula...I dropped out of math at MTH 254 and I can't remeber any interest formulas...I can't remember anything now that i think about it...oh well.
this one might be closer
http://www.dinkytown.net/java/CAMortgageLoan.html
maybe
http://www.mortgage101.com/Calculators/MortgageLength.asp?p=mortgage3
its not half the payment half way through the month and the rest at the end of the month. Its bi-weekly payments. There is an important difference. By paying bi-weekly, you WILL make an extra payment a year (12 monthly payments versus 26 biweekly payments or 13 "monthly" payments)
I see your point. Won't I also save in the long run by making a payment early as well?? Or will it be minimal?
[addsig]
pretty miminal compared to bi-weekly payments. Some banks only want one check a month too, some will charge you to setup bi-weekly payments too. The servicing company on my personal house's mortgage wanted $250 or so to set it up, and then $5 per month for a servicing fee. (Washington Mutual, suprise anybody?)
So, it is something that you have to set up within the loan. you can't just start sending in payments every 2 weeks, is that right?
Try this:
http://www.mortgage-calc.com/
Or if you want, there are other programs like a 20 year and the famous 15 year.
I re-fied my house last year for a 15 year mortgage and now half of my payments is going towards the principal.
My goal then was to keep my house for good, build more equity and pay it off right away.
The way a processing company works is by taking the biweekly payments and putting them into a bank acconutnt that they set up in your name and then when the payment is due they send it out. At the end of the year the send out the remainder of the account balance with instructions that it be put towards reducing the principle on the loan. Yes you can do it yourself. Some loans it is not a problem at all to do it yourself. Many loans however have clauses which take overage on your payments which you don't expressly explain by there process as principle and escrow them towards future delinquencies and things of that nature. The worst case situation would be if your loan has a prepayment penalty in which its quite possible that making biweekly paments would hurt you in the long run. The option which sometimes makes sense is to allow a company to handle the whole thing for you. They may charge anywhere from $250 to $500 to set everything up and then they charge a small fee $3 to $5 on every transfer to cover costs. All told it could cost as much as $2300 but over the life of the loan you will save that amount many times over. I hope that helped but if you have any questions feel free to ask
I built a spreadsheet using this formula, which worked out to within a few pennies of the amortization schedule provided by my home mortgage lendor:
PrincipalBalance * InterestRate / 12 = Interest portion of "P+I" paid per month
Just tonight I was fiddling with the calculator in my cellphone and came up with the following:
I just bought my house last year. That means(in my 30 year mortgage), I have less than 29 years left. My interest rate is 5.75%.
1 USD times .0575 = 0.0575 That's let's say a nickel in interest per year.
0.05 times 28 = 1.40 That's the cost of one dollar when financed for 28 years at 5%.
Unless I've royally screwed my math(which I might have done, someone please let me know if I have), if I paid 1 dollar extra on a 30 mortgage any time this year, I'd save 1.40 in interest over the life of the loan. That may not seem like much right here, but scale that up to 50 UDS extra payment per year saves 70 USD. 100 = 140, 500 = 700. (Your numbers will vary based on your interest rate, and how much time is left on the loan when the extra payment is made.)
This is savings. This is money the lendor thought they were going to get from you for the priveledge of making your loan that you can take out of their pockets.
Another tidbit I figured out is to find out how much your principal portion of your payment is. This will change every month, but you can use your previous statement to guess within a dollar or two.
If you make an additional payment in the amount of the principal portion of your current month's payment, you will take one full payment off the end of your loan!
The excel spreadsheet is really easy to create. I will try to explain.
1) Cell A1 is you principal balance (just type it in)
2) Cell B1 is your monthly payment (principal and interest)
3) Cell A2 is =A1+(A1*(interest rate/12))-B1
4) Cell B2 = B1
5) now copy line 2 all the way down to line 361 if you have 30 years left.
6) Cell 361 should come out to be zero
now if you want to do a biweekly thing, then just copy down to 781, and then cut the payment in half and instead of dividing by 12, do 26.
Now you pay it off in 607 payments instead of 781, so 23.3 years.
hope this helps.
Is this for your primary residence or an income property?
I wouldn't recommend making extra payments on an income property. Once the mortgage is paid off, you lose the tax advantages.
But if it's an income property you plan to dump in the near future or your primary residence, it makes all the financial sense in the world.
[addsig]
You can recieve the same benefit by making one payment per year (preferably the begining of the year) that is twice as big.
OR
You can take your monthly payment and divide it by 12. Add that amount to your monthly payment, and it does about the same thing.
There's no reason to do pay someone else to set up bi-monthly payments for you. Call your lender. They can probably do it for free as well.
Quote:
On 2004-08-20 14:32, monkfish wrote:
Is this for your primary residence or an income property?
I wouldn't recommend making extra payments on an income property. Once the mortgage is paid off, you lose the tax advantages.
The original poster didn't specify if they were referring to an income property or personal residence.
The formula would be the same for both (just in case a newbie wants to know.)
I was referring to my personal residence.
paymap has options for bi-monthly and weekly as well as extra payments. I use them for both of my mortgages serviced through Bank Of America.[ Edited by 4arunner on Date 09/08/2004 ]