Getting shafted by mortgage company

[Slandgie]

To make a long story short, I was thinking of making two half payments to my mortgage company, thinking the first half payment would be applied at the middle of the month, hence two weeks less that interest would accrue. You guys know how this works.

Well, I call my mortgage company today to ask about this and they tell me that that first half payment goes into a "suspense" account and when the second half payment comes in at the end of the month, the money from that "suspense" account comes out and the whole balance is paid at the end of the month.

Basically, no benefit! I guess the only way I can benefit is by paying above and beyond what my current mortgage is, ie an extra $100 a month. But that ain't going to happen until my credit cards and car loans are paid off (about another 3 1/2 years)

Guess I shoulda read the fine print when we refinanced about 7 years ago!

[jIM_Ohio]

To make a long story short, I was thinking of making two half payments to my mortgage company, thinking the first half payment would be applied at the middle of the month, hence two weeks less that interest would accrue. You guys know how this works.

Well, I call my mortgage company today to ask about this and they tell me that that first half payment goes into a "suspense" account and when the second half payment comes in at the end of the month, the money from that "suspense" account comes out and the whole balance is paid at the end of the month.

Basically, no benefit! I guess the only way I can benefit is by paying above and beyond what my current mortgage is, ie an extra $100 a month. But that ain't going to happen until my credit cards and car loans are paid off (about another 3 1/2 years)

Guess I shoulda read the fine print when we refinanced about 7 years ago!

They aren't screwing you, you screwed yourself...

Try this- if you get paid every two weeks, in the month you get paid 3 times make a full single extra mortgage payment. This makes you one month ahead on payments.

Then continue to pay bi weekly 1/2 the amount and tell the bank the first one is "principal only" when you send the check.

Or ask if things change if you use automatic debit vs writing a real check.

Or ask for other mortgage acceleration payoff programs they have available.

[disneysteve]

Try this- if you get paid every two weeks, in the month you get paid 3 times make a full single extra mortgage payment. This makes you one month ahead on payments.

Then continue to pay bi weekly 1/2 the amount and tell the bank the first one is "principal only" when you send the check.

Okay. I've read this multiple times and still can't follow the process.

In April, I make my regular payment, due May 1.
If I make an extra payment in April, I'll be one month ahead, having also made the payment due June 1.
In May, I make a 1/2 payment toward principal and a 1/2 payment toward the regular amount due July 1.
In June, I make a 1/2 payment toward principal and a 1/2 payment toward the regular amount due July 1.

That would bring me up to date and no longer a month ahead.

What am I missing in your suggestion?

[jIM_Ohio]

Okay. I've read this multiple times and still can't follow the process.

In April, I make my regular payment, due May 1.
If I make an extra payment in April, I'll be one month ahead, having also made the payment due June 1.
In May, I make a 1/2 payment toward principal and a 1/2 payment toward the regular amount due July 1.
In June, I make a 1/2 payment toward principal and a 1/2 payment toward the regular amount due July 1.

That would bring me up to date and no longer a month ahead.

What am I missing in your suggestion?

If I make 2 payments in April (one for April and one for May)
On May 1 I make half the payment for June
On May 15 I make the second half of June's payment
On May 29 I make the first July payment
On June 12 I make the second July payment

that is what I was thinking
you might need to have both extra paychecks available to make this work (because the example infers April is a 3 paycheck month).

It is doable, because anyone which sets aside fixed amounts each paycheck (whether they keep it in their bank or send it in does not matter) is doing this.

In our checking accounts, the Jan 1 and Jan 15 paychecks are paying Bills for February. The Feb 1 and 15 paychecks are needed for March Bills. We never have to wait for a payday to pay bills, we have the money on hand. We prefer to keep the cash on hand, but we could send in half payments if we chose to do so and were given a benefit to doing so.

[lexi_kaye]

I found a similar problem with my mortgage. You can do a couple things. Set aside half the money each pay and every other make a payment. This will get you ahead by a couple payments a year. This does help with the interest. Or, you can hold that extra money and a few times a year just make a payment to principle.

In addition, you should be paying your credit cards every pay. This achieves the same thing as you were trying to with the mortgage payment. It helps cut the interest down. Again, a few extra payments a couple times a year because of the 3 pays in a month happening. Or, you could pull that money aside and make an extra principle payment on your mortgage if that is your priorty. But typically, credit cards have a much higher rate of interest than a mortgage and should be your primary concern in paying off first.

[autoxer]

To make a long story short, I was thinking of making two half payments to my mortgage company, thinking the first half payment would be applied at the middle of the month, hence two weeks less that interest would accrue. You guys know how this works.

You are almost describing bi-weekly payments, but there is more to it, then have half of the payment applied two weeks early. With bi-weekly payments, you would make a total of 26 payments in a year, which is more than two a month and that is how it applies extra money to the principal.

If you are only trying to get half of the payment applied two weeks early to save interest, then it probably isn't worth your effort. Take a look at how much of your payment applies to the principal. Suppose you could get $100 to be applied towards the principal two weeks earlier than normal, $100 x 6.5% interest / 26 (to get the interest for two weeks) = $0.25.

[lexi_kaye]

P.S. I just checked on my mortgage. In paying 5 1/2 years so far of a 30 year mortgage, I have already knocked off 4 1/2 years of payments by doing this "biweekly" amout set aside for my mortgage payment. Consistency does pay off, even if you can only afford little amounts.

[TMBGfan]

lexi_kaye - That's a really impressive saving on your mortgage, but how would that work for credit card repayments, as the bills only come in monthly?

[autoxer]

lexi_kaye - That's a really impressive saving on your mortgage, but how would that work for credit card repayments, as the bills only come in monthly?

You pay extra money towards the principal, instead of just the minimum. It works on any type of loan.

[lexi_kaye]

to answer the question how you do this with a credit card, I figure up what my monthly payments are on all cards, I keep a spreadsheet. By the way, once I figure these up, I do not change them (assuming there are no new charges). I figure up my monthly payments, then divide into 2. Every pay (I get paid every other week), I pay online. I go in and pay the amount from my spreadsheet (monthly payment divided by 2). Sometimes, there is no minimum due, but I make that set payment amount anyways. This will take a month or two to get used to as you will need to make sure that your 2 payments will be made before the due date so you accrue no late fees, but once you get into it, you don't have to worry anymore. It puts bill paying on automatic. I hate to admit it, but there are times I don't open my credit card statement that come in the mail. When I am online making my payments, I check the recent purchases just to make sure there isn't a charge I didn't authorize. I even got my credit union to agree to do my car loan this way. They figured it out that it would knock a year off my loan and then agreed to just make the loan that way which put me into a lower interest rate bracket (2% saved!).

I don't feel so special, these are great tips I have learned off this board and other sources. I made some really stupid choices years ago and am still paying for them! I was forced to try and find every little hint I could that would help me reach my goal sooner!

P.S. It was a real struggle for me to even think about getting a car loan. My 15 year old car just wasn't going to make it anymore. It was beyond repair for inspection. As a single woman, I opted for a new car which I again plan on keeping 15 years. And because of my poor choices years ago, and most of my income going to paying that debt down, I didn't have enough money saved for a car. I hope 15 years from now, I will be totally out of debt (mortgage too) and will be able to buy my next car with cash.