I think you are all missing the savings from compounding interest. For example; Let’s say that you take out a 100,000 mortgage at 6%. Your payment is $599.95. Here are your first 5 payments:
# Prin Int
1 99.55 500
2 100.05 499.50
3 100.55 499.00
4 101.05 498.50
5 101.56 497.99
If you add just a $100.05 sent principal payment to your 1st payment, you will save 499.50 in interest. Because that $100.05 collects interst for THIRTY YEARS.
If you add just $101.05 to your third payment, you will save another $498.50. Any amount that you can pay off at the beginning of a mortgage, even a small amount, saves you 3 – 4 times that in interest over a 30 year period. So that is how, even having unused money sitting in the account, even for a few days, could save you hundreds when multiplied out over 360 payments.
I have an account where I transfer money every month for my kids’ tuition payments. It is my way of turning a 9 month pymt plan into a 12 month. But the money just sits there a lot of the time, earning a tiny bit of interest that I have to pay tax on. I would rather have it sit in a HELOC and save years of intersest for the few months that the money sat there.
The benefit becomes less though the closer you get to the end of the term.
