Alaska Darin Posted July 22, 2005 Share Posted July 22, 2005 Umm...it's not terrible advice. I wrote that assuming he refinanced into a better situation. Go read up on bi-monthly payments (50% on the 1st, 50% on the 15th), it's sound advice. 387763[/snapback] Except it's not. It's terrible advice for a variety of reasons - especially with today's interest rates. Getting a return that's the equivalent of 70% of your mortgage interest rate is a foolish investment. Link to comment Share on other sites More sharing options...
John from Riverside Posted July 22, 2005 Author Share Posted July 22, 2005 Alaska, I am not doubting you on this....but could you explain to me why it is a bad idea? I am asking simply for my own knowledge. Just for a reference....if you have a loan like what I currently have: - 8.5 percent interest.....paid every 2 weeks (not twice a month which I am finding out to be two totally different things) - To a 5.75 percent loan where the payment is divided in half and paid on the 1st and 15th of every month instead of just once a month. Link to comment Share on other sites More sharing options...
Alaska Darin Posted July 22, 2005 Share Posted July 22, 2005 Alaska, I am not doubting you on this....but could you explain to me why it is a bad idea? I am asking simply for my own knowledge. Just for a reference....if you have a loan like what I currently have: - 8.5 percent interest.....paid every 2 weeks (not twice a month which I am finding out to be two totally different things) - To a 5.75 percent loan where the payment is divided in half and paid on the 1st and 15th of every month instead of just once a month. 388046[/snapback] Bi-monthly payments are fool's gold. They save you virtually nothing and unless there is specific language in your mortgage, your lender is under no obligation to post your payment until the entire amount is received. Link to comment Share on other sites More sharing options...
IowaBill Posted July 22, 2005 Share Posted July 22, 2005 Alaska, I am not doubting you on this....but could you explain to me why it is a bad idea? I am asking simply for my own knowledge. Just for a reference....if you have a loan like what I currently have: - 8.5 percent interest.....paid every 2 weeks (not twice a month which I am finding out to be two totally different things) - To a 5.75 percent loan where the payment is divided in half and paid on the 1st and 15th of every month instead of just once a month. 388046[/snapback] I am not an expert, nor do I play one on TV, BUT, I think the reasonoing behind discouraging the "bi weekly payment" is that the extra money you send to your mortag company could be invested somewhere else with a better rate of return. In addition, AD correctly states your mortgage company is not bound to post any extra $$$ to your account until you havemet your full monthly obligation, which generally doesn't happen until the second payment you make that month. the reaosn why it makes your principal shrink faster and hastens the end of your mortgage, is that you essentially 13 payments as opposed to twelve a year. That is because a month is 4.3 weeks long, not 4 weeks long. The fallacy, as others have pointed out in this thread, is tha many people don't have the discipline to invest that extra money, so they pay extra on their mortgage with it. To a person with much financial discipline, a mortgage balance is a good thing to have. It is pretty clear that by seieng all these interest only mortgages and other sort of financial gimmickrey ("low" lease payments for cars, etc, etc.) americans are anything but financially disciplined. Link to comment Share on other sites More sharing options...
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