Making Extra Mortgage Payments

Added July 1, 2004 by Ilyce R. Glink

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Summary: Is there any advantage of sending half of the mortgage in early every month? Is the mortgage company required to accept the bi-weekly payments? The solution is to send an extra 1/12 payment every month to pay down your mortgage in less time.

Q: I love to hear you on WSB 750 in Atlanta when you fill in for Clark. You do a great service for your listeners.

I also met you at the Managing Your Money seminar in Atlanta this past year. I am a loyal reader of your books.

I have a question I need to see if you will help me with. I am having a problem with my new mortgage lender (Countrywide).

I recently refinanced my home. I am under the understanding that if I send bi-weekly payments in to my mortgage company I would reduce my mortgage interest over the life of the loan.

My payment is $709 monthly. I send payments of $360 every two weeks. I know by doing this I send one extra payment every year.

I also thought by doing this I am eliminating interest by paying half of the payment early every month. My lender told me they do not accept half payments, they only accept whole payments unless I was willing to pay $4 a month service charge to ensure the bi-weekly payments were applied correctly.

They told me the way my loan was calculated sending in the early payment did not help me save any interest. I asked them to point out in my mortgage paperwork if there was anything saying they did not accept half payments, and they could not. They told me that my account would stay messed up because the payments would not be applied to my account properly because of the way they were set up.

So, my question is: Is there any advantage of sending half of the mortgage in early every month? If so: If it is not in my paperwork, is the mortgage company required to accept the bi-weekly payments, and can they hold the 1st half of the payment until the 2nd half arrives?

A: Your lender is not required to process half payments. Instead, play the game to your advantage. Each month, send an extra 1/12 payment. So you're making the same extra payment each month, and you'll cut your 30-year mortgage to 21 years. Net effect is the same.

Bi-weekly lenders charge you $400, and you sent them the money and they hold it, and earn the float on your cash, and then pay your mortgage once a month, too. So you don't gain anything extra.

Credit card companies, on the other hand, must credit your account immediately upon receipt of a check. So, different creditors are required by law to handle payments differently.

Countrywide is a good lender, and they are giving it to you straight. Do what you can to get your payment schedule cleaned up, and start sending them two checks each month. One for your regular payment, and one clearly marked: Pay down balance.

By the way, Kudos to you for prepaying your mortgage. Thanks for listening to me on Newstalk 750 WSB!

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