- quote -

I concur concur that pre-paying principal on the mortgage will result in a
higher rate of return than stashing the money in a savings account.

HOWEVER, I think Ravi missed the earlier posts in the thread where we
concluded that the original poster (whose income varied a lot from month
to month) was asking about how to make his regular monthly payments in
advance. In other words, the original poster had made lots of money
recently and he wanted to know the best way to make the mortgage payments
that would come due this winter in advance. I continue to believe that the
smartest way to do that is to stash the extra money in a savings account
and to make the payments as they come due.

In article <M%9fd.4224$rs5.303396[at]news20.bellglobal.com> , Ravi Desai
<nospam[at].nospam.uselinux.org> wrote:

- quote -

That is a too simplistic view of money -- it does not consider
opportunity cost. In order to acutally save money on the mortgage,
one has to invest the savings in something that earns a higher
rate than what the mortgage costs.

Given the low cost of money, from a financial standpoint, it doesn't
make sense to pay a mortgage early. You most likely will do better
by investing that money.

I do agree that putting money in a savings account long term does
not make sense, not when there are CD's, money market funds, and
accounts like those offered by ING that pay more and are just as
safe. You should only keep money you need this week in a checking
or savings account, and transfer the rest to a better paying account
until it is needed at a later date.

-john-

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

Having a look at this post, and the ones in the above tree, the
appropriate thing to do becomes quite clear;
1) Use this windfall and put it in a savings account that will cover
six month's worth of expenses, this is a good idea during good times and
bad.
2) Of the amount above the money that will last for six months, put
it in as a prepaid principal, no matter how small the figure may seem.
It will prevent compounding of that sum over the years, and will cause a
huge saving a little bit at a time.
3) Continue paying the monthly payments as you have been paying.

Distribute the windfall in the above order. If you HAVE to remove a
phase, skip the 2nd phase, but keep the safety net(the six month one).
Do not ignore the 1st phase.

[at]Paul-- In reference to your suggestion to stash the windfall into a
savings account, I disagree. To keep any amount past the 6 month stash
in the account would be a waste. The interest rates for the mortgage
will always be more than the interest rate earned in the savings
account, and therefore the OP will save more money by putting in a
prepaid principal than putting the money in such an account.

Ravi.

Paul Michael Brown wrote:

- quote -

- quote -

As others has noted, I think the original poster wants to make make his
mortgage payments in advance, rather than prepay principal to pay the loan
off sooner.

This is trickier than it looks because the lenders have rules about how
they "credit" funds received over and above the amount due. Sometimes the
extra is credited toward escrows for property taxes and insurance, and
sometimes it is credited toward reducing the principal. If the original
poster sends a big check to his lender in October, he may be distressed to
learn that it was credited to his escrows or to prepaid principal and the
November-February payments are STILL DUE.

I recommend the original poster stash his windfall in a savings account
and make the future payments as they come due. Of course, this requires
the discipline not to spend the big stack of money. But if he's
self-employed and accustomed to a fluctuating income he should be able to
do that. Granted, he won't save any interest on the mortgage using this
method. But he will *earn* a little interest on the money while it sits in
his savings account.

In article <Xns9588DBD91A0DDMikeLollXNewsID2004[at]199.45.49.11> , Mike
<michaelloll[at]nospam.hotmail.com> wrote:

- quote -

Looking back, I think you are right. I didn't get when I read it,
but others seem to have drawn the same conclusion as you have.

- quote -

If you pay by a coupon, I think it would be OK to just tear out coupons
for Oct, Nov, and Dec, then write a check for each coupon. If you pay
by invoice, then contact the lending company and see how it works. I
think that they would be more than happy to get paid in advance since
they earn interest on early payments.

I have a Countrywide Loan. They send me an invoice for the next month
as soon as I pay my current payment. I have a habit of paying every
bill the day it arrives. So, I paid one month, then got an invoice
a few days later for the following month. I paid that, then got yet
another invoice a few days later. I ended up paid 4 months in advance
before I realized what was going on.

- quote -

That is always great advice, but so many people, especially the
self employeed and the under employeed find that impossible in today's
economic environment.

-john-

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

"John A. Weeks III" <john[at]johnweeks.com> wrote in
news:191020041515236233%john[at]johnweeks.com:

<snip
- quote -

While this is correct, I think what the original poster meant was can he
mail in his November, December, and January mortgage payments in October.
So he would write four checks in October ... i.e., advanced payments.

I have no idea how banks would treat this, but you can certainly stash each
month's mortgage payment away into a savings account and pull it out when
needed. That way, it earns a little interest while it waits. And if it
turns out you don't need to use that money for a mortgage payment, you can
keep it in the savings account until you do need it (aka emergency fund).

If you paid extra principal in October to the sum of three months of
mortgage payments, I think the bank would still expect a mortgage payment
in November, right?

Regardless, since your income fluctuates, it would be a good idea to try to
save three to six month's of expenses anyhow.

Thanks.

--
Michael Loll / michael.loll[at]NO.MORE.SPAM.hotmail.com

In article <sEadd.17433$l07.8328[at]twister.nyroc.rr.com> , Pete
<Pete3844[at]hotmalremove.com> wrote:

- quote -

Yes, you sure can. It is called "additional principal". Nearly all
loans allow this, although there are a tiny few that do have prepayment
fees. Check with your lender to be sure. If your loan coupon does
not have a space to list additional principal, then make out a
seperate check and put "additional principal" on it somewhere. Then
check your loan from time to time. Lenders often make mistakes and
treat your additional principal as a payment in advance (which does
you little or no good).

You end up paying less interest doing this. But do you actually
save on interest? Some say technically no. The reason is that
you pay interest for borrowing the money. You pay less interest
because you pay the money back sooner, and have less time to use
it. You actually have to invest the difference at better than
7.5% for it to actually earn you a real savings.

As an aside, 7.5% is a pretty high rate right now. If you have
decent credit, check on doing a re-fi. You might be able to
save a point or two on the loan, which really would make a
long term difference. I know that banks love to screw self-
employeed people, so do a little shoping around.

-john-

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

I'm self-employed and I get irregular paid - so some month much more then
others.
So I would like to pay in good month more money towards my mortgage (so like
make now a payment for Novemberthrough Febuary).
Can I do so and specially the question: do I save a bit in interest by that?

About my loan: I have a normal FHA Loan (7.5 %)

Thanks,
Pete