Purchasing a home, mortgage question within! (1 Viewer)

[Quez]

Ask about breaking your mortgage payment down into 2 monthly payments. It can save you 5-7 years on a 30year.

Definitely the way to go, it's crazy how many years you can shave off on a 30yr note. The only downside is that you lose most of the mental advantage of the 3 paycheck months in a year.

And you have to basically have 2 months worth of mortgage payments in your bank. You basically have to get like a month ahead.

 

[shake zula]

I'd choose option 4: Keep renting.

I can buy for 200 more per month and not live in a closet.

$200 more per month is just the beginning. Home ownership comes with home maintenance & repair.

True and it comes with added benefits too. I'm the kind of person who would rather pay 200 to fix the sink than call the landlord and wait while he bids it out to the cheapest guy.

So the added benefit is...less money in your pocket?

Who cares if a landlord fixes something cheaply? You don't own it, you just want it functional. And if you can't find an apartment where work gets done in a reasonable time frame, I'll amend my choice to "keep renting somewhere else".

The point to me is that I have control. I hire the right person, I don't have to call the landlord and wait for him to call someone else. Cheap fixes equal more time that I have to take off to be at home with joe blow plumber. I hate hate hate having to rely on other people for things. If I want to paint a wall no problem. If I want 50 dogs no problem. I want to plant some trees no problem.

I've been renting for 10 years. It's sucks the older you get.

 

[Sarnoff]

Ask about breaking your mortgage payment down into 2 monthly payments. It can save you 5-7 years on a 30year.

Definitely the way to go, it's crazy how many years you can shave off on a 30yr note. The only downside is that you lose most of the mental advantage of the 3 paycheck months in a year.

I know about this, but decided against it, due to my interest rate being 3.75%. I figure it doesn't benefit me that much to pay it off early, I'd rather have more payments to make much later when inflation has made the money I'm using to pay it worth a lot less.

 

[Henry Ford]

When would you stop paying PMI on option 2?

Never, unless I refinance.

You sure about that? Most drop off after you're down to 78-80% of the loan.

If it's FHA, they just changed their rules. MIP is essentially for the life of the loan.

 

[sbonomo]

Ask about breaking your mortgage payment down into 2 monthly payments. It can save you 5-7 years on a 30year.

How so? Is it because of the daily interest that accrues?

I think he is talking about making 1/2 payments every 2 weeks which results in 26 half payments which is one extra months payments a year. or something like that

it actually is the way that the interest accrues. If you are paying principal down 2x per month there are 15 ish less days that interest accrue on the unpaid portion of the loan. After time the $$$ start to add up (probably not 5-7 years worth of payments though). For the OP's time frame the savings would not be much. If someone really cares i will run the math for you in excel.

 

[Ignoratio Elenchi]

Ask about breaking your mortgage payment down into 2 monthly payments. It can save you 5-7 years on a 30year.

How so? Is it because of the daily interest that accrues?

I think he is talking about making 1/2 payments every 2 weeks which results in 26 half payments which is one extra months payments a year. or something like that

it actually is the way that the interest accrues. If you are paying principal down 2x per month there are 15 ish less days that interest accrue on the unpaid portion of the loan. After time the $$$ start to add up (probably not 5-7 years worth of payments though). For the OP's time frame the savings would not be much. If someone really cares i will run the math for you in excel.

Mortgage payments are usually made in arrears, so you're not saving money by paying 15 days early or whatever. The typical gimmick I've seen is what moops described - you make half your monthly payment every two weeks. This doesn't save you money on interest, it just forces you to make 13 monthly payments a year. That's why it shaves time off the loan. (ETA: It does save money on interest, of course, but not because you're saving on daily interest accrual by paying midmonth. You save money on interest because you reduce the principal faster with that "13th" extra payment every year.)

 

[BassNBrew]

Ask about breaking your mortgage payment down into 2 monthly payments. It can save you 5-7 years on a 30year.

How so? Is it because of the daily interest that accrues?

I think he is talking about making 1/2 payments every 2 weeks which results in 26 half payments which is one extra months payments a year. or something like that

it actually is the way that the interest accrues. If you are paying principal down 2x per month there are 15 ish less days that interest accrue on the unpaid portion of the loan. After time the $$$ start to add up (probably not 5-7 years worth of payments though). For the OP's time frame the savings would not be much. If someone really cares i will run the math for you in excel.

Mortgage payments are usually made in arrears, so you're not saving money by paying 15 days early or whatever. The typical gimmick I've seen is what moops described - you make half your monthly payment every two weeks. This doesn't save you money on interest, it just forces you to make 13 monthly payments a year. That's why it shaves time off the loan. (ETA: It does save money on interest, of course, but not because you're saving on daily interest accrual by paying midmonth. You save money on interest because you reduce the principal faster with that "13th" extra payment every year.)

And most of the companies I've seen offering you this charge extra for this option. The reality is that you can just send in some extra principal and accomplish the same thing.

 

[sbonomo]

Ask about breaking your mortgage payment down into 2 monthly payments. It can save you 5-7 years on a 30year.

How so? Is it because of the daily interest that accrues?

I think he is talking about making 1/2 payments every 2 weeks which results in 26 half payments which is one extra months payments a year. or something like that

it actually is the way that the interest accrues. If you are paying principal down 2x per month there are 15 ish less days that interest accrue on the unpaid portion of the loan. After time the $$$ start to add up (probably not 5-7 years worth of payments though). For the OP's time frame the savings would not be much. If someone really cares i will run the math for you in excel.

Mortgage payments are usually made in arrears, so you're not saving money by paying 15 days early or whatever. The typical gimmick I've seen is what moops described - you make half your monthly payment every two weeks. This doesn't save you money on interest, it just forces you to make 13 monthly payments a year. That's why it shaves time off the loan. (ETA: It does save money on interest, of course, but not because you're saving on daily interest accrual by paying midmonth. You save money on interest because you reduce the principal faster with that "13th" extra payment every year.)

There is actually several ways to book the note and payment of the note into the system (i work for a bank). One option that is provided by the bank is the ability to make two payments per month as i described earlier. I basically it allows you to pay principal down faster due to the number of periods. I just did the math for making one extra payment per year. It cuts roughly four years off of a 30 year mortgage - Assuming a $100M note, 5% interest, 30 year mortgage $17M of interest savings.

 

[SoBeDad]

I'd choose option 4: Keep renting.

I can buy for 200 more per month and not live in a closet.

$200 more per month is just the beginning. Home ownership comes with home maintenance & repair.

It's hard to predict inflation, but with 3% per year, after 5 years, his rent could go up 16% or more. Inflation of 3% compounded annually for 10 years is 34%. Add in tax deductions and it gets even better.

 

[Dr Oadi]

I thought loans with less than 20% down require PMI?

Some credit unions ave 0 down no pmi.

 

[Ignoratio Elenchi]

Ask about breaking your mortgage payment down into 2 monthly payments. It can save you 5-7 years on a 30year.

How so? Is it because of the daily interest that accrues?

I think he is talking about making 1/2 payments every 2 weeks which results in 26 half payments which is one extra months payments a year. or something like that

it actually is the way that the interest accrues. If you are paying principal down 2x per month there are 15 ish less days that interest accrue on the unpaid portion of the loan. After time the $$$ start to add up (probably not 5-7 years worth of payments though). For the OP's time frame the savings would not be much. If someone really cares i will run the math for you in excel.

Mortgage payments are usually made in arrears, so you're not saving money by paying 15 days early or whatever. The typical gimmick I've seen is what moops described - you make half your monthly payment every two weeks. This doesn't save you money on interest, it just forces you to make 13 monthly payments a year. That's why it shaves time off the loan. (ETA: It does save money on interest, of course, but not because you're saving on daily interest accrual by paying midmonth. You save money on interest because you reduce the principal faster with that "13th" extra payment every year.)

There is actually several ways to book the note and payment of the note into the system (i work for a bank). One option that is provided by the bank is the ability to make two payments per month as i described earlier. I basically it allows you to pay principal down faster due to the number of periods.

Sure, if you're saying that there's an option to take out a 30 year mortgage with 720 semi-monthly payments, then that will save you a little on interest (emphasis on little). The difference between having interest accrue in 360 monthly periods or 720 semi-monthly periods is tiny.

I just did the math for making one extra payment per year. It cuts roughly four years off of a 30 year mortgage - Assuming a $100M note, 5% interest, 30 year mortgage $17M of interest savings.

Right, you save money because you're making one extra payment a year, not because you're saving a bunch of money on the daily accrual of interest during the month.

If OP decides to make half his monthly mortgage payment, twice a month, for the life of the loan, he's not going to save any real money.

If OP decides to make half his monthly mortgage payment, every two weeks, for the life of the loan, he'll save a bunch.

 

[Dr Oadi]

I'd choose option 4: Keep renting.

I can buy for 200 more per month and not live in a closet.

If you have enough cash left over after your purchase to stock away for when things break/need to be replaced, go ahead. Or better yet, put that cash down and lower your payment significantly.You're talking about only putting between $10K and $15K down on a $300K property. That's miniscule.

Good ol' 2005

What could go wrong?

He gets an ARM and the interest doubles in five years.

 

[shake zula]

Ask about breaking your mortgage payment down into 2 monthly payments. It can save you 5-7 years on a 30year.

How so? Is it because of the daily interest that accrues?

I think he is talking about making 1/2 payments every 2 weeks which results in 26 half payments which is one extra months payments a year. or something like that

it actually is the way that the interest accrues. If you are paying principal down 2x per month there are 15 ish less days that interest accrue on the unpaid portion of the loan. After time the $$$ start to add up (probably not 5-7 years worth of payments though). For the OP's time frame the savings would not be much. If someone really cares i will run the math for you in excel.

Mortgage payments are usually made in arrears, so you're not saving money by paying 15 days early or whatever. The typical gimmick I've seen is what moops described - you make half your monthly payment every two weeks. This doesn't save you money on interest, it just forces you to make 13 monthly payments a year. That's why it shaves time off the loan. (ETA: It does save money on interest, of course, but not because you're saving on daily interest accrual by paying midmonth. You save money on interest because you reduce the principal faster with that "13th" extra payment every year.)

And most of the companies I've seen offering you this charge extra for this option. The reality is that you can just send in some extra principal and accomplish the same thing.

I'd choose option 4: Keep renting.

I can buy for 200 more per month and not live in a closet.

If you have enough cash left over after your purchase to stock away for when things break/need to be replaced, go ahead. Or better yet, put that cash down and lower your payment significantly.

You're talking about only putting between $10K and $15K down on a $300K property. That's miniscule.

Good ol' 2005

What could go wrong?

He gets an ARM and the interest doubles in five years.

i never understood why that kind of loan made sense for ppl.