Splitting payments, anyone doing this? m

iVillage Member
Registered: 03-27-2003
Splitting payments, anyone doing this? m
6
Sat, 06-07-2003 - 11:50am
I've heard from friends that if you make payments on bills that have accumulative interest like vehicle loans and mortgages, that you are able to pay of the interest quicker and cut years off the life of the loan. We did talk to our credit union about this and they agreed to split our house payment bimonthly after our dicharge. Is anyone currently doing this and how is it working for you? I also want to get all of our payments like this on automatic withdrawl so we avoid late payments.

TIA,

Lisa

iVillage Member
Registered: 04-19-2003
Sat, 06-07-2003 - 1:17pm
Hi Lisa,

I worked in a mortgage department for several years and by paying bi-weekly accelerated payments you will indeed save in interest and take years off the amount to time to pay off your mortgage.

How it works? They take your regular monthly pymt and divide it by half (say 1000.00) so now instead of making one payment of 1000.00 you are making two paymts of 500.00. You save on interest because one, you are making payments quicker (principle is going down faster) and secondly twice a year you will make 3 pymts of 500.00 during a one month period. The the end of 12 months you have acutally made 13 monthly pymts. (an extra 1000.00) This make a big, big difference on a mortgage. Just keep in mind when budgeting that you will make those "extra" pymts.

A loan, is not amortized the same way so the savings are not as huge but again if you pay half of what your monthly payment is everytwo weeks you will pay an extra pymt by the end of a years time.

Hope that clarifys for you. I have always (when I had one) paid my mortgage bi - weekly. I started with a 25 year mortgage and in three years I was able to knock it down to 15 years to payoff. (also due to declining interest rate) but it goes to show that paying for 18 years is going to cost less than 25 years.

Sandra

iVillage Member
Registered: 03-27-2003
Sun, 06-08-2003 - 9:51am
Thanks for the info. That was helpful and I think we will do this for sure!

Lisa

Avatar for cl_phocid
iVillage Member
Registered: 03-26-2003
Mon, 06-09-2003 - 12:34am
Just remember that bi weekly is not the same as bi monthly. When you pay bi weekly - there are 2 months out of the year that will have 3 payments - thus resulting in your making one extra payment per year.

It's a great way to get ahead and pay off your mortgage quickly!

Danni

All my best,
Danni

iVillage Member
Registered: 05-08-2003
Mon, 06-09-2003 - 9:57am
Our mortgage is paid with bi-weekly rapid payments (26 pymts/year). It gives our 25 yea mortgage a payoff date of 19 years after inception I think.

I've always done biweekly rapid, even with car loans, not only for the extra payment and less interest paid thing, but because I could then budget the payments to be due to come out with preauthorized chequing on my payday. If the first payment due was after my payday I asked them to move it back whatever amount of days to coincide with my paydays. You don't have to take the payment date they give you, you can generally move it backwards (not ahead though).

But, I didn't carry a ton of debt back then, with interest rates as low as they are right now, I'm looking at trying to redo my mortgage with just regular biweekly payments at the new interest rates. My mortgage would be my lowest interest rate credit obligation and I want to put my cash on higher rate debt right now and pay off the unsecured stuff. If you have alot of debt at high interest rates, it's questionable (IMO anyway) whether you should be trying to rapid-pay a low rate mortgage.

Then I'm going to tackle rapidly paying the mortgage once I'm done with my 'stupid' debt.

Lorraine

iVillage Member
Registered: 05-12-2003
Mon, 06-09-2003 - 1:29pm
Please read pages 231-236 of Mary Hunt's Debt-Proof Living before you do this. She talks about it in detail and explains how you can get the same benefits by doing "extra" payments yourself without a formal biweekly arrangement with your mortgage company. This way you have more flexibility if something unexpected comes up.
iVillage Member
Registered: 04-02-2003
Mon, 06-09-2003 - 1:47pm
I love the idea of doing this. One of my credit cards is through my former bank (just changed banks a week ago). In the past if I didn't have the entire payment ($200), but had some money left over from a pay check, I would pay part of the payment and pay the rest out of the next check. This is all before due date of course. It was just sometimes easier to pay part of the payment instead of holding on to it and having spent it before I had the entire payment.

I never realized that this was saving on finace charges. I will continue to do this.

My question is could I do this with my car payment without a formal arrangement? As long as they recieve the entire payment by the due date, would it matter?

Kathie