Do you REALLY need to paymortgage bi-weekly?

[MortgageQueen]

(Below is my rough draft for my mortgage column- feel free to post questions or comments. It'll help me polish it up.

Paying off your mortgage early is a great thing, and you can do it relatively easily and painlessly.

Your mortgage interest is not calculated daily. It's set up on a monthly basis ahead of time (or more then likely compounded semi-annually). Paying every 2 weeks does not help lower the amount of interest you pay.

The magic of bi-weekly mortgage payments comes into play simply because you end up paying an extra monthly payment each year directly onto the principal of the loan. This lowers the amount paid over the life of the loan.

Savvy consumers need to understand what bi-weekly mortgage programs will and will not do for them. Here are two common misunderstandings:

Myth No.1: Paying your mortgage twice a month gives you better credit. Wrong. You canget the same effect on a monthly plan using electronic bill paying. Mortgage payments are rarely part of your credit bureau unless you default.

Myth No.2: Paying twice a month reduces the compound interest on your mortgage. Wrong. In fact, even though you are paying biweekly, chances are your loan servicing institution is paying your loan monthly. Which means that if you buy into a biweekly plan, you are actually loaning the servicing/administrating company half of your mortgage payment -- interest free -- for at least two weeks every month.

What will chop away at your interest are the two additional half-payments going toward the principal each year. In other words, by making 26 payments of half your mortgage, you are in effect making 13 monthly payments instead of the customary12.

Depending on the terms of your loan -- and who you ask -- one extra payment a year will enable you to pay for your house an average of six to eight years ahead of schedule.

So in essence, all you need do is increase your “required” payment to match the equivalent of 13 payments. That said, many people are happy to do the bi-weekly payments because it makes their budgeting easier. The point of this article is to relieve the people that really struggle with those payments due to their own salary or pay structure.
More importantly, if you felt comfortable paying the equivalent extra payment every year, is there perhaps just a little bit more in your budget to add to that? How many more years could you knock off?

[ashedfc]

The interest portion is changed depending upon the compounding period of your mortgage.
Lets say you have semi annual compounding, your interest changes are done only once every 6months...
What it means is "Even if you pay extra money towards your mortgage principal, it will not change the interest amount, till the compounding period is due (every 6months).

So, either you pay on the first day or the last day of 6months, interest amount is still the same..
In other words, even though you have paid the principal portion, the interest is still being applied on it............

YES !! This is how the mortgage industry works..

[i_forget]

I have a question about payments. I increased my mortgage payment twice so I could reduce the amortization period. I would like to put some money away for something, so I thought I could reduce my mortgage by the increases that I made for a short period of time. Is this something that is easily done with a phone call or is there a larger process to reverse the increases?

[MortgageQueen]

I have a question about payments. I increased my mortgage payment twice so I could reduce the amortization period. I would like to put some money away for something, so I thought I could reduce my mortgage by the increases that I made for a short period of time. Is this something that is easily done with a phone call or is there a larger process to reverse the increases?

Good Question
Every Lender has a slightly different policy. Sometimes you can do that thru your branch. Sometimes you have to call the Lender's mortgage administration office. Either way, your branch can at least point you in the right direction.
It's not generally difficult at all. They just issue a form noting the changes you request and you sign it. Usually within 30 days it takes affect.

[matrix82]

I am wondering if there is anyway to get approved for a mortgage with massive student loan debt? My employer pays a housing allowance equal to fair rental value in the area and right now I feel that I am wasting it in paying rent rather than paying down a mortgage.

I tried the bank that I have been banking with for 20 years and basically got told there was nothing they could do as I had student loan debt. My husband's bank was a little bit nicer, but same story, we have too much student loan debt to qualify.

We have excellent credit, always pay our bills on time and are making a dent in our student loans, but it is going to take us 10-15 years to pay them off. It is really frustrating. Are there any government programs that would help us qualify for a mortgage. We are so tired of living in apartments.

We also have consumer debt of having a car, which again we are paying off each month on time.

[ashedfc]

I am wondering if there is anyway to get approved for a mortgage with massive student loan debt? My employer pays a housing allowance equal to fair rental value in the area and right now I feel that I am wasting it in paying rent rather than paying down a mortgage.

I tried the bank that I have been banking with for 20 years and basically got told there was nothing they could do as I had student loan debt. My husband's bank was a little bit nicer, but same story, we have too much student loan debt to qualify.

We have excellent credit, always pay our bills on time and are making a dent in our student loans, but it is going to take us 10-15 years to pay them off. It is really frustrating. Are there any government programs that would help us qualify for a mortgage. We are so tired of living in apartments.

We also have consumer debt of having a car, which again we are paying off each month on time.

In such a situation, Banks will never offer mortgage..
only a mortgage brokers can get it done for you. talk to MortgageQueen (the person who started this thread; she should be able to get it done for you).

[Shwa Girl]

MortgageQueen, nice article. I like the Myth and Fact idea.

We have a biweekly mortgage and increased the biweekly amount by $100 per payment. It's a small amount (what we can afford) but it's making the mortgage pay off quicker.

We also try to pay a little more at the anniversary, shaving off some years to being mortgage free.

We are trying to have a house emergency fund for big bills too - roof, furnace, windows-- so we are not hit with a big bill if these need fixing or replacing.

[matrix82]

Wouldn't a mortgage broker use the same formula as the banks?

[i_forget]

No. Different lenders have different criteria for lending and have access to lending institutions many may even be aware of. So where your bank may say no, a different lending institution may say yes. When I first tried to get a mortgage, I was rejected because of the amount of time my kids dad had lived in Canada (3 years living and working in Canada was not long enough for the banks apparently). I went to a broker and she had 8 different offers lined up for me within 24 hours.

[ashedfc]

Mortgage broker has a lot more option than the banker.. There are a lot of things a mortgage broker can do which a banker cannot do.. Bankers resources are limited to their institution only, mortgage brokers resources are not limited to any one institution.

[Zonny]

We pay ours every two weeks, plus pay enough extra on our variable rate mortgage that the amount doesn't fluctuate. It reduced a 25 year mortgage to 17.

[marstec]

I am wondering if there is anyway to get approved for a mortgage with massive student loan debt? My employer pays a housing allowance equal to fair rental value in the area and right now I feel that I am wasting it in paying rent rather than paying down a mortgage.

I tried the bank that I have been banking with for 20 years and basically got told there was nothing they could do as I had student loan debt. My husband's bank was a little bit nicer, but same story, we have too much student loan debt to qualify.

We have excellent credit, always pay our bills on time and are making a dent in our student loans, but it is going to take us 10-15 years to pay them off. It is really frustrating. Are there any government programs that would help us qualify for a mortgage. We are so tired of living in apartments.

We also have consumer debt of having a car, which again we are paying off each month on time.

You do realize that the more debt that you have, the less you'll be able to borrow on a mortgage. So, if you are fortunate enough to get mortgage approval, you might have to settle for something rather than getting the home you want, and in the area you want to live. Homeownership is wonderful, but there are lots of "unknowns" as well...things pop up and you need to have the funds to deal with it. With a massive debt load, even with your responsible financial actions, you might not be able to come up with cash for emergencies. Imo, it's a good idea to make some extra income (from a part time job?) to bring down that debt before looking at owning a home.

[MortgageQueen]

Zonny and ShwaGirl--Kudos to you for doing so well!!! Don't forget your retirement though either. As long as you are investing for that, then paying off your mortgage fast is a good thing. I always recommend talking to a financial investment advisor. (that would NOT be me! lol) someone trustworthy and with references. There are TONS of tax shelters, trusts and you name it, that can be utilized for retirement. . . .and I'm not talking about rich people either. Just everyday SmartCanucker's like us. . .

Shwa Girl- - it's nice to see that you are preparing for house emergency fund (or could be "anything" emergency) Very smart.

Matrix 82- Ash and i_forget are correct. We have many lenders to choose from. . . so we try to fit the Lender to YOU, not the other way around. For instance, some Lenders will not even consider a self-employed individual in business for less the 3 years but other Lenders are fine with it. Or if taxes are not filed, or you're on maternity leave, etc, etc. There's a niche Lender out there for most folks. It's just matching and negotiating, that's all.

As far as your student loans, I would have to look at your entire financial picture. Sometimes there's ways of shifting the money around to make it work. Mortgage underwriting can be stringent but if you know hoew to work with it, a lot can be done that you wouldn't expect to be possible. It's good you've kept good credit. That will help you a lot in the future.

Even people with large quantities of debt (except Gov't) I can help by negotiating with their creditors to take a percentage on the dollar. That way I can use whatever equity they might have in their home to eliminate their debt. Might not be able to save their credit rating but at least there's a chance they can keep their home, sign off on all their debt and Not go bankrupt or into credit proposal. I guess you could say that's another benefit of owning a home. Please don't get me wrong! This is not an "out" I would ever encourage. . .but life happens sometimes. . .whether we intend it to or not. . .

[LandlordBill]

Of course, saving money is important when paying back your mortgage.

However, I would advise to not give yourself so much pressure. The most important thing is you pay on time!

[ame555]

I have a question about payments. I increased my mortgage payment twice so I could reduce the amortization period. I would like to put some money away for something, so I thought I could reduce my mortgage by the increases that I made for a short period of time. Is this something that is easily done with a phone call or is there a larger process to reverse the increases?

We were paying higher bi-weekly but when I went on mat leave I asked them if we could reduce -- no problem at all -- just a phone call and they reduced the payment to what the normal bi-weekly amount was for the year...when I went back to work we went back up.