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Old 05-18-2010, 09:50 PM
 
440 posts, read 1,169,261 times
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my lender has a weekly/bi-weekly option for my mortgage payment, i've heard that using that would somehow reduce my interest, but how? i have not seen any concrete evidence or detailed payment break down rather to prove this, could someone knowledgeable use a number example to illustrate this?
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Old 05-18-2010, 11:01 PM
 
364 posts, read 804,275 times
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Google "compound interest". That's the answer.
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Old 05-19-2010, 12:27 AM
 
Location: East Bay Area
165 posts, read 520,211 times
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If you pay bi-weekly half payments you'll have 1 extra payment per year (vs. 12 monthly payments).

Seems like it's not much, but really, it is!

link
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Old 05-19-2010, 04:45 AM
 
440 posts, read 1,169,261 times
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so somehow by using the bi-weekly option, my lender would except a half payment, as opposed to a full payment if using the regular monthly plan, every 2-week for the whole 52-week year, and guarantee that the extra 2 bi-weekly payments would go entirely towards the principal, thus effectively shorten the life span of the mortgage, is that right?
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Old 05-19-2010, 05:05 AM
 
Location: NJ
17,579 posts, read 38,328,551 times
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Keep in mind some lenders charge a fee in order to go to a bi weekly payment plan. My lender told me just make the extra payment myself if I wanted to do this as they were charging something like $300 in order to be in this plan. They also were charging a small monthly fee on top of that.

Some informatin here:

http://www.bankrate.com/brm/news/mtg/20010920a.asp
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Old 05-19-2010, 05:32 AM
 
440 posts, read 1,169,261 times
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that article is saying what i've been suspecting all along, NO, it DOES NOT reduce one's interest!!! it's no different than paying extra on top of the scheduled payment and apply the extra towards the principal thus shorten the terms of the mortgage, anyone knows differently want to charm in...
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Old 05-19-2010, 05:47 AM
 
11,614 posts, read 19,729,031 times
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Quote:
Originally Posted by brassbin View Post
that article is saying what i've been suspecting all along, NO, it DOES NOT reduce one's interest!!! it's no different than paying extra on top of the scheduled payment and apply the extra towards the principal thus shorten the terms of the mortgage, anyone knows differently want to charm in...
It does reduce interest over the course of the loan because the principal balance decreases at a faster rate.
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Old 05-19-2010, 07:04 AM
 
Location: Richardson, TX
10,150 posts, read 16,735,602 times
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You can also just make 1 extra P&I payment per year yourself at your convenience, and not sign up for any program.

Google amortization calculators and you can see for yourself how much 1 extra payment per year will shorten the term of a loan. Shortening the term reduces the total interest you will pay over the life of the loan.
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Old 05-19-2010, 07:20 AM
 
Location: NJ
17,579 posts, read 38,328,551 times
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Quote:
Originally Posted by brassbin View Post
that article is saying what i've been suspecting all along, NO, it DOES NOT reduce one's interest!!! it's no different than paying extra on top of the scheduled payment and apply the extra towards the principal thus shorten the terms of the mortgage, anyone knows differently want to charm in...
I think what they were saying is that it doesn't reduce your interest for that particular two week period you paid early.

But it does reduce your overall interest as it reduces your principal balance. This is fairly easy to see by how much it shortens the length of the loan. If you did this every year over 30 years it would be 30 extra payments. That is only 2.5 years. Yet this can reduce your time by much longer than that.
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Old 05-19-2010, 10:13 AM
 
Location: Columbus, Ohio
34 posts, read 145,532 times
Reputation: 28
Reduces your EFFECTIVE Interest rate. It's a good sales pitch but it is also very true how many years you can cut off your mortgage if you're willing to go bi-weekly
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