Which is more beneficial: splitting a monthly mortgage payment into two payments or just paying once a month?

Which is more beneficial: splitting a monthly mortgage payment into two payments or just paying once a month?

Postby toru22 » Sat May 07, 2011 7:29 pm

I am currently paying my mortgage at the first of the month. A co-worker suggested that I might pay less interest on my mortgage if I were to split that payment in to two payments for the month (half on the 1st, half on the 15th). Does anyone know if splitting my mortgage payment like that would make any noticeable difference?
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Which is more beneficial: splitting a monthly mortgage payment into two payments or just paying once a month?

Postby donatus51 » Sat May 07, 2011 7:32 pm

Yes, it will save you a significant amount over the life of the loan. Ask your lender for a comparison.
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Which is more beneficial: splitting a monthly mortgage payment into two payments or just paying once a month?

Postby thieny » Sat May 07, 2011 7:32 pm

It's an option that you can apply for. You'd pay twice the first month, then have split payments the rest of your loan. So, you'd actually make an extra payment each year. This takes years off your loan and in turn, you pay less interest and save a lot of money. You can do the same by just making extra payments each month.

We do this for our home. Here's an article that better explains it.
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Which is more beneficial: splitting a monthly mortgage payment into two payments or just paying once a month?

Postby shattuck78 » Sat May 07, 2011 7:35 pm

You wont feel the savings immediately, but you will over the life of the loan.

With biweekly payments, you pay half of the monthly mortgage payment every 2 weeks, rather than the full balance once a month. This is comparable to 13 monthly payments a year, which can result in faster payoff and lower overall interest costs.

For example, the biweekly mortgage payment process can pay off a $200,000 30 year fixed loan at 7% in approximately 24 years (75 months sooner than a standard payment plan), with a total of $68,925 in interest savings.

So, you save just about 6 years on the mortgage, and almost 70k in interest savings.

Paying your car loans weekly or biweekly is also very beneficial :)
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Which is more beneficial: splitting a monthly mortgage payment into two payments or just paying once a month?

Postby archer » Sat May 07, 2011 7:37 pm

It absolutely WILL make a difference in the interest that you're paying over the life of the loan because you are reducing the principal twice a month.

Even better though, and especially if you get paid every two weeks, is to make a half payment every two weeks. Not only are you reducing principal more frequently, but over the course of a year you will actually make 26 payments which equals 13 monthly payments. If you can do that without great hardship, you can actually cut YEARS and MANY THOUSANDS OF DOLLARS off the amount actually paid.
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Which is more beneficial: splitting a monthly mortgage payment into two payments or just paying once a month?

Postby hevataneo9 » Sat May 07, 2011 7:38 pm

Pay the standard payment monthly as due. Then make a separate additional payment to principal each month. That will bring down the loan balance and shorten the life of the loan.
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Which is more beneficial: splitting a monthly mortgage payment into two payments or just paying once a month?

Postby mona95 » Sat May 07, 2011 7:40 pm

I'm pretty sure you don't have a choice. The usual and customary way to pay it is once a month and on the date your mortgage company or bank tells you do, the day you signed and accepted as the payment date. I don't think your co-worker knows what she's talking about, however I think maybe she wants to see how hard you fall for anything other people say.

No, you don't pay less interest on any split payment. What I think your co-worker is thinking about and maybe got mixed up about is that if a person pays (and the bank allows them to pay that way) a higher payment per month than required (but your contract must allow that, read your contract) and the loan would be like 15 years instead of 30 years, THEN you'd be paying less interest.

5% isn't bad. I remember when it was 7% and 9% and I'm not sure, maybe it even went higher.
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Which is more beneficial: splitting a monthly mortgage payment into two payments or just paying once a month?

Postby bedyw » Sat May 07, 2011 7:41 pm

You would not save any interest if your bank only posted the payment once a month anyway. {This is more apropo to people who go through a third party; i e do not deal with the lending institution directly.}

I just figured it out. You would save about $1.50 a month, and with compounding, that would be $630 - or so - over the life of the loan. (from day one). - while making the bank mad b/c they have to do the extra work.

If you really want to save interest and shorten the loan, set it up for automatic payment (draft) from your account {anywhere between the 1st and 15th; like the 14th if you earn interest on the money in your account) and then add extra principal to the $724 payment to be paid automatically every month. Say $50. Out of sight, out of mind, and that is like almost 4 extra months of principal payments in the first year (then figure 3 / yr for several years.)

EDIT: Note, BI-WEEKLY (26 payments a year) is NOT what you asked, nor what I computed. Yes - you would save money if you made **26** $362 pmts each year. (but my way is easier).
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