Paying mortgage company every week instead of every month?

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  #1  
Old 05-23-09, 01:16 PM
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Paying mortgage company every week instead of every month?

I just refinanced a 30 year with Wells Fargo.

Just wondering, what would happen if pay weekly one fourth of the monthly payment.
Wouldn't I effectively prepay my loan and reduce the interest paid over time?
 
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  #2  
Old 05-23-09, 01:47 PM
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Depends on the contract..but yes, thats normally how it works. There are many calculators out there that let you look at the differences.

I've seen several places that going to a bi weekly payment (26 per year vs 12) will pay off a 30 yr mortgage in about 18-20 years. There is also the option of making your regular payment and adding on a certain amount to be applied to just the principal. Or just sending an additional payment when possible and apply it to the principal.

The one thing you don't want is to lock into a payment schedule that you can't meet.
 
  #3  
Old 05-23-09, 01:57 PM
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Seems like a no-brainer to pay weekly if they allow this without a charge. My effective monthly payment stays the same.

Does this work when I setup the payment or only if the mortgage company withdraws from my bank account?
 
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Old 05-23-09, 02:22 PM
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I think you need to check with your lender for further info. Most have the options mentioned...they just want their money.
 
  #5  
Old 05-23-09, 03:45 PM
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I looked into this when we received or mortgage from Wells Fargo, they had a bi-weekly payment and said that we would pay it off sooner since you would make 13 payments a year vs. 12. Well, I can't remember, but my question is, does that 13th payment go towards principal only or principal and interest? Because if it goes towards principal and interest, you are better off just making a 13th payment without the plan since it would just go towards principal.

I think if you try to pay weekly without it in your mortgage agreement you would quickly receive a phone call stating that you need to pay your full mortgage.
 
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Old 05-24-09, 03:16 PM
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It also may make no difference in the long run; the lender may simply hold each weekly payment until it adds up to the month's payment and then apply it.
 
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Old 05-24-09, 03:23 PM
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Only had a couple of mortgages..but they all had a spot either on the form or online where you could make an additional payment to the principal, escrow, interest or whatever.
 
  #8  
Old 05-25-09, 07:45 PM
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Some lenders charge extra for switching to a bi-weekly payment schedule. It means extra work for them. A simple way I've done in the past: First, request an amortization schedule from your lender/servicer. You can get one from numerous programs on-line but I've always felt that getting it from the lender helps ensure you're both on the same page whenever you start. The payments will be numbered on the amort. schedule. Find out where you are now ... if your next payment is your first one, or 26th or whatever. Make the next payment as normal. Check off that payment number on your schedule. At the same time make a seperate additional payment only for the principle amount of the next scheduled payment # and check that one off. Next month move on to the next payment number that is not checked off (ignore the stated due date on the amort. schedule - you will be paying ahead of the due dates listed there). This serves the same purpose as a bi-weekly but doesn't obligate you for the extra payment each month and doesn't cost additional fees. It also keeps the math simple and your amortization schedule is always correct. If you want to pay down more one month, in your seperate additional payment you can pay the next 2, 3 or 12 months principle portions in that single payment. Always be clear with the lender (we used to write it on the checks) that the additional payment made is only for principle reduction. One of the benefits of having and following an amortization schedule is that you will always know what your principle balance is, so it's easy to check year-end statements from the lender for errors. It's also kind of fun in the early years when the principle portion is small to lop off (pre-pay), and extra 6 or 12 months worth of principle for relatively little dough. The ealier years of a mortgage are also where you can have the greatest impact on interest savings by paying down interest. Of course there's a downside to this method, and that is you have to be disciplined enough to do it yourself and to do it consistently to reap the greatest interest savings.
 
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Old 05-26-09, 10:25 AM
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Hi destruct05. At the risk of disagreeing with several of the posted comments, there is simply no magic to bi-weekly payments. It is simply a process of calculating the interest due on the balance due. As Melissa said, bi-weekly adds up to an extra payment each year which is what accumulates over time to pay off your mortgage early. The secret, if there is one, is what TJMako said you have to be "disciplined". If you are disciplined, then the math, not the magic, will be to your strong advantage. 30, 40, and now 50 year mortgages were invented by banks (I'm not really sure) to profit from the masses wanting to live the American Dream years before they can afford it.

Keep it simple:
1. pay on time to keep your credit perfect
2. build up a nest egg (cash cushion) for emergencies. Opinions will vary, but 6-months income is a good number.
3. Determine what your lender is willing to do (suggested by many).
4. Be disciplined and set up a payment plan for extra payments that you can live with.
5. pay off high interest debt first. mortgages are usually the lowest interest rate you pay. Credit cards, auto loans, and others need to be paid first.
6. create a budget, not necessarily to limit what you spend, but to learn where you are spending. It's part of being disciplined.

Good Luck,
Bud
 
  #10  
Old 05-31-09, 01:19 PM
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Bi-monthly mortgages

When you have a bi-monthly mortgage, the banks generally require that you have the payments auto-drafted from your account. They can't keep up with billing you that often. You could set up a separate account just for this purpose and put money in it weekly if you get paid that way.

Despite what has been written, paying bi-monthly is greater than that "one extra payment" per year due to the way loan interest is calculated. On a thirty year loan, your loan will be paid off in about 18 years. Every two weeks, the principal portion will be deducted and the interest recalculated.

Making the extra principal payment as suggested doesn't always work since many banks take this principal payment off the end of the loan thus not re-calculating the current principal and interest portions of your payments. You need to be sure to ask your lender how they calculate these extra payments.

Good Luck!

Cecilia
 
  #11  
Old 05-31-09, 01:26 PM
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Just for clarification:

Bi-monthly means every two months
Semi-monthly means twice a month
Bi-weekly means every two weeks.

Paying more often than required will reduce the term of the loan by reducing the accrued interest and thus increasing the percentage of your payment going to principal.
 
  #12  
Old 12-02-11, 07:01 AM
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Make it work for you

This can work but sometimes you have to think outside the box. First, all banks act differently.

Please contact your mortgage lender and ask them how they take in payments. Give scenarios such as, "If I send my payment weekly, what happens? If I send it biweekly, what happens?"

Some companies will hold your money until the full monthly payment amount is received and then make your payment. Others (my bank wells fargo) will take any payment not equal to your monthly payment and apply it to your principal only. (I tried to do biweekly by sending them the payments and I still ended up owing my whole monthly amount!)

Some banks (wells fargo does) have a biweekly payment plan (some offer this service free such as wells fargo) where they take the money out of your account and it will be applied accordingly.

They will even do the math for you and tell you how much you will save in interest as well as your new payoff date. For me, I was told by wells fargo that by entering the free biweekly payment auto draft program, I would shave off 7 years and $15k off. (Amounts will vary due to loan amounts and interest rates to remind you). I even asked if paying weekly would help. Representative said yes, but they didn't have that open for me to do.

This is what I did. I was already paying an extra 100 a month. Me paying biweekly as well as an extra 100 a month that I send in personally, my payoff year decreased another 3 years to 10yrs. Since the representative confirmed that paying weekly would help and that any payment under my payment amount would be applied to principal, I decided to break up my extra payment.

I send in 20 a week. It isn't much but this means that 20 is taken from the principal each week, meaning 20 less being charged interest from the whole pot. I haven't found a calculator to help me see how much I save doing it this way but it will only help me more than what I am doing now. I do online banking so this comes out of my account and sent to the bank without me doing anything extra. I can stop this extra 20 at any time. Please keep in mind my payment amounts can be different from yours, it will also affect your loan differently since your loan will not be as high or low as mine.

Banks do what is beneficial for them. If they are charging a fee to use the program, please do the full math. You can still save but just not as much...or it may be just as expensive...just remember to look at the full picture and add the payments up even with the fee. I know as well that banks must put money where you tell them to. Many may not use it but use checks. Write them in advance so you don't worry about forgetting to mail them. In the memo section put that it is to go to principal only. Some require that the payment slip be included but I believe if it is on the check, that is where it goes. As always ask questions.
 
  #13  
Old 12-18-11, 05:24 AM
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extra mortgage payments

You can obtain the same outcome by paying 1/12 of the principle part of your mortgage each month. (only the principle part not the total payment) Write a separate check and put apply to principle on the ledger line with your account number. Always check on line or on your following statement to make sure the bank has applied it to your prinicple and not your escrow account. By doing this from your first payment on you will pay off your 30 year mortgage in approx 18 years. I have done this on all my properties.
 
  #14  
Old 12-19-11, 07:08 AM
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Umm... clarification, please?

Paying 1/12 of the principal each month would result in the mortgage being paid in one year.
 
  #15  
Old 12-29-11, 03:03 PM
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Wells Fargo does have a bi-weekly payment plan, but you have to sign up for it, and they charge about $500 to do it. If you look on the back of your statement, you will see it.

If you send it money when a payment isn't due, they will accept it merely as an additional payment. When you payment date comes, they will expect the full payment in addition to whatever you paid earlier in the month. They won't take a bi-weekly payment as 1/2 of the monthly amount unless you sign up for it.

Already asked, didn't feel like giving them $500 so I just send in additional over the due amount, they automatically apply that to principal.
 
  #16  
Old 01-14-12, 03:21 PM
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might consider making one extra payment by dividing 12 into your monthly:example $2400 $200 added every month to make it $2600 with that then do a every 2 weeks 1st and the 15th of the month and you will bang that thing down to nothing in 15yrs.BOA wants it all done electronicly thru banking account and them they would flip out opening 2 envelopes per month thru the mail
 
  #17  
Old 01-15-12, 07:27 AM
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when i had a mortgage , i wanted to pay it down asap. so what i did = after a little nest egg, i would take every extra $$$'s i had each month, and put that towards principal. i paid it off pretty quickly.
 
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