We've been paying off our mortgage fairly aggressively over the last couple of years, mainly out of skittishness about the equity markets, and low yields in the fixed income markets. Prepaying your mortgage is just like any other investment, it should be weighed against the alternatives.

So while our mortgage prepayments only yielded 4-5% after the tax impact is considered, that's a lot better than the 30-40% loss those funds would have taken if invested in equities over the same time period. We've saved significantly in the short term and long term by taking the guaranteed return on retiring our debt.

I also want to emphatically agree with those who've said that while prepaying your mortgage can be a good idea, no way in hell should you ever pay your bank a fee for the privilege of paying early or more frequently. About the only people I could imagine a bank sponsored biweekly payment plan would make sense for are those so undisciplined that they'll blow the money if they take responsibility for managing the prepayments. With most loans, you can add extra principal to your payment on any schedule you wish, which gives you the most flexibility.

Posted by: Cobbler at January 21, 2009 8:43 PM in response to biweekly mortgage payment

Do like you said in your original post - pay an additional 1/12 every month & make sure it goes toward principal reduction. Essentially the same accelerated payoff, but you avoid paying the bank a few hundred bucks to set up the biweekly plan for you. You can always stop the extra principle payments if you have to, or if there's something better to do with that money.

http://www.bankrate.com/brm/news/mtg/20010920a.asp

Posted by: Bklnite at January 22, 2009 9:59 AM in response to biweekly mortgage payment

The only thing I would add, is that I think you have to be a month ahead and THEN pay the bi-weekly amounts. You cannot start off paying bi-weekly, unless you are set up through the bank itself who did your mortgage. (The fee kind I believe)

You can do this without paying the fee, by doing it the way I mentioned. You are choosing yourself to pay bi-weekly and could change if you needed to, versus being required to.

For Example..easiest if you have a new loan..

Today is March 13. Your first loan payment is Due April 1st.

If you get paid bi-weekly and have the money to pay an extra payment before starting your loan..

Pay today the Full April Payment :: Let's say it's 2000.00.

On your next payday: let's say March 15th. Pay half. 1000.00
Next payday March 30th. Pay the other half. 1000.00

You have now paid your April Payment early, and have started the bi-weekly.
This way the bank SHOULD be applying your half payments when made because you are considered Current on your loan.

IF you paid 1/2 on March 15, and 1/2 on March 30th and it was the APRIL Payment...
I don't believe the first 1/2 payment will be applied UNTIL you pay the 2nd Half of the payment on the 30th.

I THINK it only works if you are already paid first.

I hope that makes sense.

OF COURSE , PLEASE check with your Own Mortgage company to verify first.

Posted by: nhmom at March 13, 2009 11:37 AM in response to biweekly mortgage payment