I need a mortgage genius

[92024]

Is it true if I pay bi-weekly instead of monthly, I can reduce the total amount I pay on my loan? I have heard this from my financial planner, but I am not quite sure I get it, or why it works? He encouraged me to figure it out wit a mortgage calculator, but I could not find one that would add in the change after my interest only period, plus I suck at math.

My current scenario is a 40 year fixed at 6.35 with the first 10 years interest only on a $475,000 loan balance.
Can anyone figure out what the difference would be if I paid bi-weekly. I have owned my place a year and pay $3018 per month.
Thanks,
92024

[SD Realtor]

You don’t need a genius.

Every mortgage is unique. Let’s take an example of a simple 30 year fixed rate mortgage amortized over 30 years. Your very first payment will be just about all interest and a tiny tiny bit of principal. Your second payment will be a tiny fraction less interest and a tiny fraction more principal…. and so on and so on.

Now instead of making 12 monthly payments, let’s say you make biweekly payments. Well essentially you will be making an extra payment right? There are 26 biweekly pay periods in a year.

All you are really doing is paying down your principal in a structured manner. Indeed this is a good way to slowly chip away at your principal. Many will argue to not do that and instead invest that extra payment in an investment vehicle to get a better return then servicing your debt.

This post is not to debate that point but to simply illustrate an overly simplified answer to your question.

********

Now getting to the specifics of your loan, your first 10 years are I/O so any payment you make above and beyond the interest will (I assume) go towards your principal. However you need to check with the lender to make sure that indeed will be the case.

You do have a problem you have to cope with. Right now your payment is interest only. At the end of the 10th year you will then need to make a full payment and you amortization will kick in. Your payment will go up. Yours is an example of many loans we talk about on Piggington.

Do you know what your new payment will be? You need to find out. HLS or Pasadena broker can answer better then I but I would bet that your payment will be based on a 30 year amortization. What is more troublesome is, what will your rate be? I assume your current rate is only for the first 10 years.

I don’t want to bring you down, but instead of focussing on making an extra payment, (if you can afford to do so) you may want to think about refinancing into a safer vehicle. Alternately if you are going to not be in the home and sell within the next 10 years it makes no sense to prepay it down.

[SD Realtor]

You don’t need a genius.

Every mortgage is unique. Let’s take an example of a simple 30 year fixed rate mortgage amortized over 30 years. Your very first payment will be just about all interest and a tiny tiny bit of principal. Your second payment will be a tiny fraction less interest and a tiny fraction more principal…. and so on and so on.

Now instead of making 12 monthly payments, let’s say you make biweekly payments. Well essentially you will be making an extra payment right? There are 26 biweekly pay periods in a year.

All you are really doing is paying down your principal in a structured manner. Indeed this is a good way to slowly chip away at your principal. Many will argue to not do that and instead invest that extra payment in an investment vehicle to get a better return then servicing your debt.

This post is not to debate that point but to simply illustrate an overly simplified answer to your question.

********

Now getting to the specifics of your loan, your first 10 years are I/O so any payment you make above and beyond the interest will (I assume) go towards your principal. However you need to check with the lender to make sure that indeed will be the case.

You do have a problem you have to cope with. Right now your payment is interest only. At the end of the 10th year you will then need to make a full payment and you amortization will kick in. Your payment will go up. Yours is an example of many loans we talk about on Piggington.

Do you know what your new payment will be? You need to find out. HLS or Pasadena broker can answer better then I but I would bet that your payment will be based on a 30 year amortization. What is more troublesome is, what will your rate be? I assume your current rate is only for the first 10 years.

I don’t want to bring you down, but instead of focussing on making an extra payment, (if you can afford to do so) you may want to think about refinancing into a safer vehicle. Alternately if you are going to not be in the home and sell within the next 10 years it makes no sense to prepay it down.

[SD Realtor]

You don’t need a genius.

Every mortgage is unique. Let’s take an example of a simple 30 year fixed rate mortgage amortized over 30 years. Your very first payment will be just about all interest and a tiny tiny bit of principal. Your second payment will be a tiny fraction less interest and a tiny fraction more principal…. and so on and so on.

Now instead of making 12 monthly payments, let’s say you make biweekly payments. Well essentially you will be making an extra payment right? There are 26 biweekly pay periods in a year.

All you are really doing is paying down your principal in a structured manner. Indeed this is a good way to slowly chip away at your principal. Many will argue to not do that and instead invest that extra payment in an investment vehicle to get a better return then servicing your debt.

This post is not to debate that point but to simply illustrate an overly simplified answer to your question.

********

Now getting to the specifics of your loan, your first 10 years are I/O so any payment you make above and beyond the interest will (I assume) go towards your principal. However you need to check with the lender to make sure that indeed will be the case.

You do have a problem you have to cope with. Right now your payment is interest only. At the end of the 10th year you will then need to make a full payment and you amortization will kick in. Your payment will go up. Yours is an example of many loans we talk about on Piggington.

Do you know what your new payment will be? You need to find out. HLS or Pasadena broker can answer better then I but I would bet that your payment will be based on a 30 year amortization. What is more troublesome is, what will your rate be? I assume your current rate is only for the first 10 years.

I don’t want to bring you down, but instead of focussing on making an extra payment, (if you can afford to do so) you may want to think about refinancing into a safer vehicle. Alternately if you are going to not be in the home and sell within the next 10 years it makes no sense to prepay it down.

[SD Realtor]

You don’t need a genius.

Every mortgage is unique. Let’s take an example of a simple 30 year fixed rate mortgage amortized over 30 years. Your very first payment will be just about all interest and a tiny tiny bit of principal. Your second payment will be a tiny fraction less interest and a tiny fraction more principal…. and so on and so on.

Now instead of making 12 monthly payments, let’s say you make biweekly payments. Well essentially you will be making an extra payment right? There are 26 biweekly pay periods in a year.

All you are really doing is paying down your principal in a structured manner. Indeed this is a good way to slowly chip away at your principal. Many will argue to not do that and instead invest that extra payment in an investment vehicle to get a better return then servicing your debt.

This post is not to debate that point but to simply illustrate an overly simplified answer to your question.

********

Now getting to the specifics of your loan, your first 10 years are I/O so any payment you make above and beyond the interest will (I assume) go towards your principal. However you need to check with the lender to make sure that indeed will be the case.

You do have a problem you have to cope with. Right now your payment is interest only. At the end of the 10th year you will then need to make a full payment and you amortization will kick in. Your payment will go up. Yours is an example of many loans we talk about on Piggington.

Do you know what your new payment will be? You need to find out. HLS or Pasadena broker can answer better then I but I would bet that your payment will be based on a 30 year amortization. What is more troublesome is, what will your rate be? I assume your current rate is only for the first 10 years.

I don’t want to bring you down, but instead of focussing on making an extra payment, (if you can afford to do so) you may want to think about refinancing into a safer vehicle. Alternately if you are going to not be in the home and sell within the next 10 years it makes no sense to prepay it down.

[SD Realtor]

You don’t need a genius.

Every mortgage is unique. Let’s take an example of a simple 30 year fixed rate mortgage amortized over 30 years. Your very first payment will be just about all interest and a tiny tiny bit of principal. Your second payment will be a tiny fraction less interest and a tiny fraction more principal…. and so on and so on.

Now instead of making 12 monthly payments, let’s say you make biweekly payments. Well essentially you will be making an extra payment right? There are 26 biweekly pay periods in a year.

All you are really doing is paying down your principal in a structured manner. Indeed this is a good way to slowly chip away at your principal. Many will argue to not do that and instead invest that extra payment in an investment vehicle to get a better return then servicing your debt.

This post is not to debate that point but to simply illustrate an overly simplified answer to your question.

********

Now getting to the specifics of your loan, your first 10 years are I/O so any payment you make above and beyond the interest will (I assume) go towards your principal. However you need to check with the lender to make sure that indeed will be the case.

You do have a problem you have to cope with. Right now your payment is interest only. At the end of the 10th year you will then need to make a full payment and you amortization will kick in. Your payment will go up. Yours is an example of many loans we talk about on Piggington.

Do you know what your new payment will be? You need to find out. HLS or Pasadena broker can answer better then I but I would bet that your payment will be based on a 30 year amortization. What is more troublesome is, what will your rate be? I assume your current rate is only for the first 10 years.

I don’t want to bring you down, but instead of focussing on making an extra payment, (if you can afford to do so) you may want to think about refinancing into a safer vehicle. Alternately if you are going to not be in the home and sell within the next 10 years it makes no sense to prepay it down.

[Deal Hunter]

Note: You have an IO for the first 10 years, so the only way to lower your balance is to make an EXTRA payment to principal that is above and beyond your minimum interest payment. The best source of a direct answer to your particular arrangement is with the lender. If the CS rep that you first talk to can’t help, then ask to speak to a supervisor.

Basically, it depends on when/how your mortgage calculates your interest on the principal. In the best case, your loan is re-amortized everytime you make a payment, meaning that the principal from which your interest is calculated is lower each time because of the previous payment that you made. But, this is generally only true of principal and interest payments.

In most cases, the loan is re-amortized only once a year, so you can lower your balance by simply making ONE extra payment at your anniversary date. The best thing to do is to call your lender and ask this directly. You could even request a payment option that lets you pay the payment in 2 monthly installments or on a bi-weekly basis.

[Deal Hunter]

Note: You have an IO for the first 10 years, so the only way to lower your balance is to make an EXTRA payment to principal that is above and beyond your minimum interest payment. The best source of a direct answer to your particular arrangement is with the lender. If the CS rep that you first talk to can’t help, then ask to speak to a supervisor.

Basically, it depends on when/how your mortgage calculates your interest on the principal. In the best case, your loan is re-amortized everytime you make a payment, meaning that the principal from which your interest is calculated is lower each time because of the previous payment that you made. But, this is generally only true of principal and interest payments.

In most cases, the loan is re-amortized only once a year, so you can lower your balance by simply making ONE extra payment at your anniversary date. The best thing to do is to call your lender and ask this directly. You could even request a payment option that lets you pay the payment in 2 monthly installments or on a bi-weekly basis.

[Deal Hunter]

Note: You have an IO for the first 10 years, so the only way to lower your balance is to make an EXTRA payment to principal that is above and beyond your minimum interest payment. The best source of a direct answer to your particular arrangement is with the lender. If the CS rep that you first talk to can’t help, then ask to speak to a supervisor.

Basically, it depends on when/how your mortgage calculates your interest on the principal. In the best case, your loan is re-amortized everytime you make a payment, meaning that the principal from which your interest is calculated is lower each time because of the previous payment that you made. But, this is generally only true of principal and interest payments.

In most cases, the loan is re-amortized only once a year, so you can lower your balance by simply making ONE extra payment at your anniversary date. The best thing to do is to call your lender and ask this directly. You could even request a payment option that lets you pay the payment in 2 monthly installments or on a bi-weekly basis.

[Deal Hunter]

Note: You have an IO for the first 10 years, so the only way to lower your balance is to make an EXTRA payment to principal that is above and beyond your minimum interest payment. The best source of a direct answer to your particular arrangement is with the lender. If the CS rep that you first talk to can’t help, then ask to speak to a supervisor.

Basically, it depends on when/how your mortgage calculates your interest on the principal. In the best case, your loan is re-amortized everytime you make a payment, meaning that the principal from which your interest is calculated is lower each time because of the previous payment that you made. But, this is generally only true of principal and interest payments.

In most cases, the loan is re-amortized only once a year, so you can lower your balance by simply making ONE extra payment at your anniversary date. The best thing to do is to call your lender and ask this directly. You could even request a payment option that lets you pay the payment in 2 monthly installments or on a bi-weekly basis.

[Deal Hunter]

Note: You have an IO for the first 10 years, so the only way to lower your balance is to make an EXTRA payment to principal that is above and beyond your minimum interest payment. The best source of a direct answer to your particular arrangement is with the lender. If the CS rep that you first talk to can’t help, then ask to speak to a supervisor.

Basically, it depends on when/how your mortgage calculates your interest on the principal. In the best case, your loan is re-amortized everytime you make a payment, meaning that the principal from which your interest is calculated is lower each time because of the previous payment that you made. But, this is generally only true of principal and interest payments.

In most cases, the loan is re-amortized only once a year, so you can lower your balance by simply making ONE extra payment at your anniversary date. The best thing to do is to call your lender and ask this directly. You could even request a payment option that lets you pay the payment in 2 monthly installments or on a bi-weekly basis.

[Coronita]

This has been covered before here.

Bi-weekly means your making 26 payments (there's 52 weeks per year), which isn't the same thing as bi-monthly (which means there 24 payments).

Hence, your "accelerated" mortage pay off from a bi-weekly plan would be no different than if you just made 1 extra monthly payment toward your principle each year…except that companies that administer the bi-weekly plan usually charge a "service fee" to do this.

Save yourself some money. If you have an extra $3000 around each year, just apply it directly to your principle. There's no magic going on here.

 

[img_assist|nid=5962|title=selfportrait|desc=|link=node|align=left|width=100|height=80]

—– Sour grapes for everyone!

[Coronita]

This has been covered before here.

Bi-weekly means your making 26 payments (there's 52 weeks per year), which isn't the same thing as bi-monthly (which means there 24 payments).

Hence, your "accelerated" mortage pay off from a bi-weekly plan would be no different than if you just made 1 extra monthly payment toward your principle each year…except that companies that administer the bi-weekly plan usually charge a "service fee" to do this.

Save yourself some money. If you have an extra $3000 around each year, just apply it directly to your principle. There's no magic going on here.

 

[img_assist|nid=5962|title=selfportrait|desc=|link=node|align=left|width=100|height=80]

—– Sour grapes for everyone!

[Coronita]

This has been covered before here.

Bi-weekly means your making 26 payments (there's 52 weeks per year), which isn't the same thing as bi-monthly (which means there 24 payments).

Hence, your "accelerated" mortage pay off from a bi-weekly plan would be no different than if you just made 1 extra monthly payment toward your principle each year…except that companies that administer the bi-weekly plan usually charge a "service fee" to do this.

Save yourself some money. If you have an extra $3000 around each year, just apply it directly to your principle. There's no magic going on here.

 

[img_assist|nid=5962|title=selfportrait|desc=|link=node|align=left|width=100|height=80]

—– Sour grapes for everyone!

[Coronita]

This has been covered before here.

Bi-weekly means your making 26 payments (there's 52 weeks per year), which isn't the same thing as bi-monthly (which means there 24 payments).

Hence, your "accelerated" mortage pay off from a bi-weekly plan would be no different than if you just made 1 extra monthly payment toward your principle each year…except that companies that administer the bi-weekly plan usually charge a "service fee" to do this.

Save yourself some money. If you have an extra $3000 around each year, just apply it directly to your principle. There's no magic going on here.

 

[img_assist|nid=5962|title=selfportrait|desc=|link=node|align=left|width=100|height=80]

—– Sour grapes for everyone!

[Author]

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