Comments on: The “Myth” of Weekly Mortgage Payments http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/ Investing and Personal Finance Sat, 31 Jul 2010 15:45:55 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Heather http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/comment-page-1/#comment-75498 Heather Mon, 21 Jun 2010 15:40:42 +0000 http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/#comment-75498 Hrm... weekly payments are going to save me a ton!!! My mortgage is for 40 years @ 4.25. Doing it bi weekly I was going to save $65K (in interest) and weekly $75K because the interest will have less time to compound. 10K over the life of the loan (which going weekly will be cut exactly in half... I will be paid off in 20 years (give or take)). I accounting for the fact I *am* paying extra towards the loan in both scenerios. Hrm… weekly payments are going to save me a ton!!! My mortgage is for 40 years @ 4.25. Doing it bi weekly I was going to save $65K (in interest) and weekly $75K because the interest will have less time to compound. 10K over the life of the loan (which going weekly will be cut exactly in half… I will be paid off in 20 years (give or take)). I accounting for the fact I *am* paying extra towards the loan in both scenerios.

]]> By: Mike http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/comment-page-1/#comment-34517 Mike Tue, 06 Oct 2009 03:15:02 +0000 http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/#comment-34517 Ausie - welcome to the blog. Yes, you did misunderstand - there is no such thing as a "clearing house" or "second parties" - you make your payments right to the bank or whoever you have your mortgage with. Ausie – welcome to the blog. Yes, you did misunderstand – there is no such thing as a “clearing house” or “second parties” – you make your payments right to the bank or whoever you have your mortgage with.

]]> By: ausie - bank customer http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/comment-page-1/#comment-34515 ausie - bank customer Tue, 06 Oct 2009 03:09:04 +0000 http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/#comment-34515 Hi all, It sounds like you yanks and canadians get the "sharp end of the stick" when dealing with the banks. In australia - or mortages are calculated daily and intrest is charged monthly. - not much different from you, but from what I have read every where on the net, it looks like you have to send your payments through a clearing house each month and then they decide if they will pass them on to the bank, in a timely fashion. Australians, have total control of their funds, we will make direct debits from our accounts straight into our loan accounts. No second parties - and if we dont like our online banking then we walk into the branch and make the payment over the counter. Hey presto - we are in total control of how the money goes into our accounts and what the daily loan banlance will be! If i missunderstood what you all have been saying sorry for the post - but I thought I would just share the australian way of banking -- and ps, the banks are theives! Hi all,
It sounds like you yanks and canadians get the “sharp end of the stick” when dealing with the banks. In australia – or mortages are calculated daily and intrest is charged monthly. – not much different from you, but from what I have read every where on the net, it looks like you have to send your payments through a clearing house each month and then they decide if they will pass them on to the bank, in a timely fashion.
Australians, have total control of their funds, we will make direct debits from our accounts straight into our loan accounts. No second parties – and if we dont like our online banking then we walk into the branch and make the payment over the counter. Hey presto – we are in total control of how the money goes into our accounts and what the daily loan banlance will be!

If i missunderstood what you all have been saying sorry for the post – but I thought I would just share the australian way of banking — and ps, the banks are theives!

]]> By: MoneyBeat.com http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/comment-page-1/#comment-5218 MoneyBeat.com Tue, 15 Apr 2008 22:48:36 +0000 http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/#comment-5218 Compound interest rates - fun stuff. The best advice is generally to go talk to the best advisor (leave it to the pros!). A lot of people would be glad to remove interest rates from their vocabulary altogether! Compound interest rates – fun stuff. The best advice is generally to go talk to the best advisor (leave it to the pros!). A lot of people would be glad to remove interest rates from their vocabulary altogether!

]]> By: Sat Weigh-In and LinkStuff | Quest For Four Pillars http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/comment-page-1/#comment-3077 Sat Weigh-In and LinkStuff | Quest For Four Pillars Sat, 19 Jan 2008 17:38:57 +0000 http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/#comment-3077 [...] Plonkee hosted the Carnival of Personal Finance this week and listed our submission “The Myth of Weekly Mortgage Payments” [...] [...] Plonkee hosted the Carnival of Personal Finance this week and listed our submission “The Myth of Weekly Mortgage Payments” [...]

]]> By: Mortgage Broker http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/comment-page-1/#comment-2908 Mortgage Broker Mon, 14 Jan 2008 17:46:45 +0000 http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/#comment-2908 This is a great topic FP because so many people (at least clients I talk to) are confused by the effects of compounding. By way of example, here's a table with examples of interest savings on a $200,000 mortgage with different payment frequencies (assumes a 40-year Amortization): Payment Frequency Savings ------------------------- ----------- Monthly $0 Bi-Weekly $1,638 Weekly $1,948 Bi-Weekly Rapid $93,491 Weekly Rapid $94,180 (Source: TD Payment Comparer) Cheers, Melanie This is a great topic FP because so many people (at least clients I talk to) are confused by the effects of compounding. By way of example, here’s a table with examples of interest savings on a $200,000 mortgage with different payment frequencies (assumes a 40-year Amortization):

Payment Frequency Savings
————————- ———–
Monthly $0
Bi-Weekly $1,638
Weekly $1,948
Bi-Weekly Rapid $93,491
Weekly Rapid $94,180

(Source: TD Payment Comparer)

Cheers,
Melanie

]]> By: carnival of personal finance: photo quiz edition : plonkee money http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/comment-page-1/#comment-2901 carnival of personal finance: photo quiz edition : plonkee money Mon, 14 Jan 2008 10:07:20 +0000 http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/#comment-2901 [...] Pillars from Quest For Four Pillars presents The “Myth” of Weekly Mortgage Payments, how weekly mortgage payments pay down your mortgage faster only because you are making extra [...] [...] Pillars from Quest For Four Pillars presents The “Myth” of Weekly Mortgage Payments, how weekly mortgage payments pay down your mortgage faster only because you are making extra [...]

]]> By: Shevy http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/comment-page-1/#comment-2893 Shevy Sun, 13 Jan 2008 07:24:23 +0000 http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/#comment-2893 I'm actually a big fan of weekly payments. When I got my (former) condo I barely qualified with my 5% down and a 25 year amortization. By paying weekly I cut the payback period to 20 years and 4 months. Yes, 4 times a year there was an extra payment, but I got paid every 2 weeks, which means that twice a year I'd have a third pay period in the month and the 2 corresponded (the extra pay period and the extra weekly payment). So there were only 2 times a year that I had to come up with "extra" money. But I couldn't have taken a shorter amortization period, because I wouldn't have fit the ratios the banks and CMHC insist on. Another time when it's better to take a longer amortization and either pay weekly and/or pay extra is when some of your income is commission or bonus based. Set your mortgage up for what you know you're guaranteed to be able to pay even during a month when you only get the base pay. Pay more every month that you make the extra money and stick away enough for the dates when the extra payments fall out. I’m actually a big fan of weekly payments. When I got my (former) condo I barely qualified with my 5% down and a 25 year amortization. By paying weekly I cut the payback period to 20 years and 4 months. Yes, 4 times a year there was an extra payment, but I got paid every 2 weeks, which means that twice a year I’d have a third pay period in the month and the 2 corresponded (the extra pay period and the extra weekly payment). So there were only 2 times a year that I had to come up with “extra” money.

But I couldn’t have taken a shorter amortization period, because I wouldn’t have fit the ratios the banks and CMHC insist on.

Another time when it’s better to take a longer amortization and either pay weekly and/or pay extra is when some of your income is commission or bonus based. Set your mortgage up for what you know you’re guaranteed to be able to pay even during a month when you only get the base pay. Pay more every month that you make the extra money and stick away enough for the dates when the extra payments fall out.

]]> By: Saturday Weigh In and Links | Quest For Four Pillars http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/comment-page-1/#comment-2872 Saturday Weigh In and Links | Quest For Four Pillars Sat, 12 Jan 2008 13:35:57 +0000 http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/#comment-2872 [...] I got another email from the unsubscriber himself who returned the post email (which was on weekly mortgage payments) with the following message (I added the [...] [...] I got another email from the unsubscriber himself who returned the post email (which was on weekly mortgage payments) with the following message (I added the [...]

]]> By: Gates VP http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/comment-page-1/#comment-2859 Gates VP Fri, 11 Jan 2008 07:19:53 +0000 http://www.moneysmartsblog.com/the-myth-of-weekly-mortgage-payments/#comment-2859 Mortgages that accrue interest daily huh? Sounds like a pretty sweet deal for the mortgage lender. But then it <i>may</i> justify the extra payment plan. The difference seems terribly negligeable to me. Either you make 4 extra payments/year or you can just save the same money in an interest-bearing account and make one extra payment / year. All in all you've spent the same money, so where do you end up? Depends on the interest rate, but the worst case scenario is that you've lost the difference of the rates by your extra payments. If you make an extra $4000 dollars of payments on an 8% mortgage vs. having the money simply invested at 6%, then you end up with a maximum loss of 2% of 4k = $80. This doesn't factor in the cases where your investments are making more or any intra-year inflationary values. Really, this whole "extra payments" thing is nothing but a mental <i>tour de force</i>. People don't mind a little self-inflicted pain as long as they get a break (only once every three months) and they're achieving their goal (home ownership). The "extra payment" plan is a "make it automatic" strategy for saving, so discussing the numerical savings benefits is really pointless. I think that Cheap brings up the primary flaw here. Unless you have some seriously deep-seated fear of debt, or really bad saving habits or you feel like the home is a giant weight on your shoulders, then I don't really see the point of spending today's money to prevent eventually negligeable payments tomorrow. If your mortgage payments are seriously stifling cash flow, then buying 3.5 years of "freedom" in 2030 doesn't sound like the solution to me. In fact, if your mortgage payments <i>are</i> stifling your cash flow, then the <i>last</i> thing you want to do is throw even more money into the same non-liquid investment. If anything you want the cash around so you don't have to run off and grab a HELOC for cash flow. OTOH, if you can actually afford the "extra payment" plan, then why not just get a smaller amortization period and simply pay more each time? It's the same principal, just one step further. Mortgages that accrue interest daily huh?

Sounds like a pretty sweet deal for the mortgage lender. But then it may justify the extra payment plan.

The difference seems terribly negligeable to me. Either you make 4 extra payments/year or you can just save the same money in an interest-bearing account and make one extra payment / year. All in all you’ve spent the same money, so where do you end up? Depends on the interest rate, but the worst case scenario is that you’ve lost the difference of the rates by your extra payments.

If you make an extra $4000 dollars of payments on an 8% mortgage vs. having the money simply invested at 6%, then you end up with a maximum loss of 2% of 4k = $80. This doesn’t factor in the cases where your investments are making more or any intra-year inflationary values.

Really, this whole “extra payments” thing is nothing but a mental tour de force. People don’t mind a little self-inflicted pain as long as they get a break (only once every three months) and they’re achieving their goal (home ownership). The “extra payment” plan is a “make it automatic” strategy for saving, so discussing the numerical savings benefits is really pointless.

I think that Cheap brings up the primary flaw here. Unless you have some seriously deep-seated fear of debt, or really bad saving habits or you feel like the home is a giant weight on your shoulders, then I don’t really see the point of spending today’s money to prevent eventually negligeable payments tomorrow.

If your mortgage payments are seriously stifling cash flow, then buying 3.5 years of “freedom” in 2030 doesn’t sound like the solution to me. In fact, if your mortgage payments are stifling your cash flow, then the last thing you want to do is throw even more money into the same non-liquid investment. If anything you want the cash around so you don’t have to run off and grab a HELOC for cash flow.

OTOH, if you can actually afford the “extra payment” plan, then why not just get a smaller amortization period and simply pay more each time? It’s the same principal, just one step further.

]]>