Madison MoneySports - Personal Finance Thread

[CaptainHenreh]

Once we got rid of PMI i guess the company took us seriously (i tracked it down to the month)... we got an offer to do a program to pay half 15 days early and the other half on time, something about speeding up our pay off? anyone have any experience with that? 

So, it's basically just an interest game, because banks calculate your interest at a regular interval (usually daily) so if your balance is lower when they do the calc, you...pay less interest.

I'd ask, though, instead of Half on the first, say, and half on the fifteenth, if you could make payments just a flat every two weeks. Most of us get paid every two weeks (not bimonthly) and while we kind of THINK of a month as four weeks long, it isn't. over the span of thirty years, or even ten, this makes an enormous difference.

Think of it like this:

Let's assume a 30 year mortgage, blah blah, whatever APR, that's 360 monthly payments. That's how they'll split it up. If you do it twice a month, that's 720 half payments.

But if you pay every two weeks... how long does it take you to get to 720? 52 weeks in a year. 26 payments a year, your mortgage is paid off in July of your 27th year, even if your bank doesn't offer you any kind of savings on interest.

But if your bank DOES (and most do), then boy howdy are you gonna save some money.

Let's take a look!

Let's say you after all is said and done buy a house with a $200000 mortgage, at a 3% interest rate (hey not bad, good for you!).


Loan length: 360 Months
Your monthly payment: $843.21*
The total interest you will pay over the life of the loan: $103,554.90 (fuuuuuuuuuuuuuuukkkkkk)
Total cost of your loan: $303,554.90. i say gaw DAMN.


But hey, you get paid every two weeks. Why not pay your mortgage every two weeks?

Loan Length: 317 Months
Your biweekly payment: $421.60 (aka, half your monthly payment)
Total interest you will pay over the life of the loan: $89,796.71
Total cost of your loan: $289796.71

Savings paying every two weeks: $13,757.29

Ain't compound interest a bitch? And that's not even getting into throwing another hundo on top of that $421 (as long as you can apply it to the principle) that will save you like, another ten grand and a few years on your loan.

So kaan, ask if you can make biweekly payments. You're basically slapping a whole extra month's payment every year, and with proper budgeting no heartburn at all.

(This works for cars too, you just don't pay for 30 years on cars.)



*Lots of people's monthly payments include personal property tax escrow, homeowners insurance, and potentially mortgage insurance (for your lender lol, not for you silly boy) and obviously you won't get any benefit on your interest by paying extra on that. I'm just talking the loan service payments.