Generally paying off your house debt isn't about the fact you made payments
twice per month - it is that you made 13 monthly payments each year instead
of 12. Just make an extra principle payment each month of an extra 8.34%
and you don't have to worry about it.

My lender told me when I was younger that they will deposit the extra
payment but it's a pain in the butt and increases expenses for everyone.
Imagine if everyone made 30 monthly payments - it would be a pain.


"Frank Burns" <frankburnz[at]hotmail.com> wrote in message
news:b989e890.0407091501.54da26d4[at]posting.google.com...
- quote -

Frank Burns <frankburnz[at]hotmail.com> wrote:

- quote -

Possibly, hard to say. Most standard mortgage contracts credit interest
paid on the due date, rather than the exact day it arrives, so splitting
and paying twice a month won't matter. Fortunately, it won't matter
anyway -- the amount you save by that little bit of time shifting is
minuscule. "biweekly" payment plans lower the term significantly,
because they pay more money over a year, as others have explained.

Almost all mortgages avaialble today, allow prepayment, all you have to
do is add 1/12th of your payment to each payment and clearly designate
the extra money as paying down your principal balance (on your check, on
a payment slip, or on a separate letter).

It's doesn't even have to be 1/12th, it can be *any* amount more or less
than that. Whatever you pay down will reduce your principal and pay off
your mortgage earlier, and is probably a worthwhile investment for many
people these days.


Michael

"HW "Skip" Weldon" <skip5700removethis[at]hotmail.com> wrote in message
news:nomve0117v5sedkptnqhbegttr699o8o9d[at]4ax.com...
- quote -


TOUCHE````

Cal

["HW \"Skip\" Weldon" <skip5700removethis[at]hotmail.com> ] wrote:
[ 16 lines in misc.invest.financial-plan ]
===================

- quote -

That is true, of course. On the other hand, since personal debt and
mortgage debt have been rising so fast in the last six years, maybe the
advice should be geared towards debt reduction rather than debt
accumulation, in the general case. There are also strong points to be made
for a risky housing market. For instance, read The Economist or my bachelor
thesis in finance.

- quote -

cost burden to later years, especially with a low-inflation environment.
Being conservative when it comes to debt is a good general advice today, I
think. Of course, it varies widely from household to household... But the
recent popularity of ARM's and "no-money-down"-loans are clear warning
signs. The "financial ammunition" available when it comes to supporting an
ever-expanding mortage market is being depleted.

--
Joakim Persson
M.S. student, CS/CE [at] LTH, Lund, Sweden
Libertarian -- Heavy Metal fanatic
zaladin[at]home.se -- http://www.efd.lth.se/~d00jp

Joakim Persson wrote:

- quote -

I would agree with this part of the observation. As you pay off the
home, you are building the equity in the asset. The more equity you
have in the asset, the more flexibility you have in managing your
finances down the line and, obviously, if the mortgage is paid off
you end up on a monthly cash flow basis in a lot better shape than
most people--your out of pocket housing costs are significantly
lower than others in a similar position.

- quote -

I presume you mean that instead of paying off the mortgage, you keep
refinancing short term ARM mortgages that are paying interest only.
But if you instead simply pay a 30 year fixed rate mortgage
according to the amortization schedule, you actually come out
*ahead* if interest rates rise, since you are using money "cheap" at
low rates and then are able to invest at market rates. Of course,
that involves additional risk

- quote -

I agree that the old "buy the most expensive house you can afford
and let inflation bail you out" is not terribly likely to work as it
did for those who bought homes prior to the extreme inflation of the
late 1970s and 80s.

- quote -

I am also concerned about the number of people buying homes with
financing structured to make today's monthly payment as low as
possible. They then buy the most expensive property they can
qualify for under that (temporarily) reduced payment, generally on
an "interest only" ARM with a rate adjustment in a few years. And,
oh yeah, putting very little down just for good measure.

That seems, to me, to be setting us up for a big bubble bursting in
housing since those buyers are exposed unless prices continue to
increase and rates stay low--that is, if the future plays out
exactly like the immediate past.

- quote -

To me the problem with this fact pattern is that you do reach a
limit for how much of a household's income can or will be devoted to
housing. As well, there are limits on how much lower interest rates
could go (and, in fact, they seem headed up) which will make it
difficult to continue to support higher stated housing prices with
financing gimmicks to lower the amount of monthly cash outlay per
$1,000 of home cost.

But back to the original issue--paying down a mortgage is a risk
issue. You can keep the mortgage at as high a level as possible and
then use the funds that would have paid down debt to invest. But if
you do that, you are playing the leverage game--and leverage works
both directions.

As well, I think an issue similar to the one that we see argued for
buying cash value life insurance comes into play. Agents regularly
argue that, in reality, the strategy "buy term and invest the
difference" tends to become "buy term and blow the difference"
<grin> . A similar risk faces those who decide against paying down
the mortgage.

In my practice, most of those I see with "maximized" mortgages on
their residences over the long term tend to not have significant
investment portfolios--rather, they are using the borrowed funds to
increase consumption. So if you do decide to keep the mortgage and
invest the funds instead, be sure you have the discipline to
actually invest those funds.

--
Ed Zollars, CPA
Phoenix, Arizona

On 10 Jul 2004 11:10:04 GMT, zaladin[at]home.se (Joakim Persson) wrote:

- quote -

We can justify virtually any conclusion by varying the assumptions.
So like many of the popular debates in personal finance, I doubt that
we will ever achieve consensus.

Academics aside, there is one thing I have noticed. Among those who
are debt-free, I have detected no signs of mass movement back into
debt because they miss the benefits. <grin
-HW "Skip" Weldon
Columbia, SC

["Cal Lester" <cal-lester[at]comcast.net> ] wrote:
[ 52 lines in misc.invest.financial-plan ]
===================

- quote -

Paying off the mortgage is essentially the same as saving, and that is
often a good reason to own your own home instead of renting.

If you don't pay off your mortgage, you are much more sensitive to interest
rate changes. For instance, if you pay off your mortgage in 30 years, you
will in effect be living cheaper after a while, even if interest rates
increase from 4% to 6%. If you don't pay off your mortgage, an interest
rate increase from 4% to 6% will increase your housing costs by 50%.

Since inflation is low, there is not as big a chance to count on income
increases to make housing more affordable. Therefore, paying off the
mortgage is the logical way to go.

And the reason that there is a possible housing bubble is that households
don't act this way. Instead, by stretching out and borrowing more and
paying back less, housing _looks_ affordible -- in the short term, before
interest rates increase...

Since US households spend a larger portion of income on housing than
before, and the ratio of house prices by household income is higher than
ever before, means that households are in a more risky position with
respect to housing. Thus, for individual households paying off debt is a
way to reduce this risk.

--
Joakim Persson
M.S. student, CS/CE [at] LTH, Lund, Sweden
Libertarian -- Heavy Metal fanatic
zaladin[at]home.se -- http://www.efd.lth.se/~d00jp

In article <A8HHc.7449$z95.5621[at]newssvr23.news.prodigy.com> , Kenetra
Ahlaam <news[at]no925here.com> wrote:

- quote -

Note that most of these bi-weekly mortgage programs are a scam and
a rip-off. They all have lots of fees. You don't need to pay the
fees, just make an extra principal payment each year, and you have
exactly the same effect as a bi-weekly loan. Skip the scam and do
it yourself.

-john-

--
================================================== ==================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ==================

Frank Burns wrote:

- quote -

First question--what does your mortgage say? Mine has specific
clauses that indicate how a "prepayment" will be handled (including
a requirement to designate payments as such), as well as the fact
that the monthly payments are due as scheduled. The terms authorize
the lender to "hold" the application of monthly payments until the
scheduled due date and apply them then. And my payment coupon
includes a box in which additional principal payments can be designated.

Second point--as Rich notes, in most cases what you see as the
"magic" of making "two payments a month" is rather making a half
payment every two weeks. As Rich notes, that ends up making an
"extra" payment per year. Making an extra payment applied to
principal each year will have a similar effect of shortening your
mortgage. That extra payment ends up going straight against
principal if designated as a prepayment in accordance with your note
and "moves you down" the amortization schedule vs. the schedule time
period.

--
Ed Zollars, CPA
Phoenix, Arizona

"Rich Carreiro" <rlcarr[at]animato.arlington.ma.us> wrote in message
news:u3c40ww6x.fsf[at]animato.arlington.ma.us...
- quote -


Let me add my 2 cents to the equation. Why pay off the mortgage
AT ALL???????

I do not know where you live, nor how old you are, but I do know
that
MOST people will live in "at least 7 different homes" throughout
their
lives.

In many (if not most) cases, that EXTRA payment is applied against
the Principal, resulting in "pennies of interest" being saved.
Whereas
NOT paying off the mortgage (possibly re-financing at an even lower
rate) could INCREASE the "Income Tax Deductible Interest", resulting
in even MORE spendable Income......................................

I for one would rather put my money to work (or play) rather than
"in the ground". (but then again, what do I know?)

Cal Lester CLU
(retarded)

Hey Frank,

If your mortgage papers don't forbid you from pre payments then yes what
they are doing is illegal and you need to fight them on this issue because
paying bi-weekly can knock 9-12 years off a 30 year mortgage.

I am a mortgage consultant and offer a bi-weekly mortgage savings program to
homeowners and have seen some lenders do this to homeowners but we go back
and fight them and they have to give in if the contract does not stipulate
pre payment penalties.

Good luck,
Kenetra

"Frank Burns" <frankburnz[at]hotmail.com> wrote in message
news:b989e890.0407091501.54da26d4[at]posting.google.com...
- quote -

frankburnz[at]hotmail.com (Frank Burns) writes:

- quote -

Actually, that won't take any meaningful time off the
mortgage at all -- it still works out to 12 "full-size"
payments per year.

What will reduce the term is making half-size payments
*every two weeks*. That works out to *13* "full-size"
payments per year and that extra payment is what makes
the loan get paid off earlier.

And if you grind out the math, you'll discover that there
is very, very little different in the results of making
26 half-payments vs. 13 full-payments.

So just make an extra full-size payment at some point
during the course of the year.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

I just bought a house and so we all know you can take off a good hand
full of years (6) off a 30 year fixed mortgage, by making payments
twice a month, instead of once a month. So I sent in my first half
payment (over a month early) and I got a letter back saying they will
not apply it to my loan, and they will just hold it in my account
until I make the other half. ARGH! Lenders are not dumb, I've
scoured my loan papers and it says nothing of this in the contract.
Is this legal? What should I do?