Comments on: My Castle Is Not My Own, At This Rate It Never Will Be

By: loan refinance

loan refinance — Wed, 27 Jan 2010 16:54:06 +0000

This is my 4th time here now. I really enjoy your site and look forward to more reading!

By: MrPlasectomy

MrPlasectomy — Thu, 26 Feb 2009 17:53:50 +0000

Hi Kathy,
That’s a great idea and I completely forgot about this tactic. I wonder if my bank would allow something like this and if by chance it would alleviate some of the stress of that big payment at the beginning of each month and having to go another 14-18 days without significant income coming in.

Thanks for the idea!

By: Kathy

Kathy — Thu, 26 Feb 2009 17:20:35 +0000

Hi,
If your bank will let you do this, here is a good way to save some interest. Because loans are set up so that your payments are first applied to accrued interest, then the remainder is applied to principal, you can save interest by dividing the same amount of payment per month into more frequent payments. For example, if your monthly payment is $1000, pay 250 4 times per month. Because you are paying off the accrued interest each week, you are also paying on principal each week. So, for the last 3 weeks of every month, the daily accrued interest is slightly less, because your principal has gone down. It seems like a small savings, but over the course of your 30 year loan, you will pay it off nearly 2 years faster. If you are able to add an extra 5 or 10 dollars to each weekly payment, (or also pay every week, so 4 months per year will actually get an extra payment) it will go that much faster. I own a business so I am at the bank every day anyway, so I actually make daily payments on my mortgages.

By: Mr Plasectomy

Mr Plasectomy — Tue, 24 Feb 2009 19:57:05 +0000

Hi Suzanne
I agree that having an affordable payment and rationalizing the “what if’s” are extremely important. You never know when disaster will strike. It is great that there is no prepay penalty clause in your mortgage. For us, we were first time home buyers with only 5% down. We kinda shot ourselves in the foot in two ways. The 30 year mortgage where we have built up very little equity in the home and a result of that plus the 5% down we are still paying PMI. If we had opted for the 15 year fixed the PMI would be gone by now, however I don’t think we could have afforded the 15 year mortgage on our current residence.

By: Suzanne

Suzanne — Tue, 24 Feb 2009 18:18:34 +0000

Dear Mr. Plasectomy: (cool name, ps!)

Although our finances and sizable downpayment would have allowed it at the time, we also opted for the 30 year mortgage term. Our reasoning was that with the longer term, the required payments were lower, so that if we lost a job or had some other unseen financial disaster, we would still be able to make those lower payments.

We sure aren’t tied to that 30 year term - opting to write the mortgage in such a way that allows us to make direct principal payments without penalty – so we make significant payments against the principal whenever we’re able.