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Simple Savings Sunday #10 – Extra Mortgage Payments

Simple Savings Sunday #10   Extra Mortgage Payments savings Welcome to another edition of Simple Savings Sunday.  I hope everyone has had a wonderful weekend.  I know my wife and I have been busy running around.  We are deep in the process of putting the house on the market.  We have carpet guys coming to repair some issues and a Realtor heading out.  I am conducting interviews to see which company I want to go with.  We also just rented a storage unit in order to declutter the house.  No matter what, there was a good amount of money spent this weekend, I you know I am not a fan of that.  Either way, this week’s saving tip is about making extra payments on your mortgage.

Making Extra Mortgage Payments

There was an article on Modest Money by a guest author.  The title was “Why Making an Extra Payment on Your Mortgage Will Get You Nowhere!”  I thought the title was interesting, so I checked it out.  After reading it, I was not really happy.  The author of the post, who is in the banking industry says that if you make biweekly payments on your mortgage, you will only shave off 1.5 years.  Now, the typical speech for biweekly payments is that you will shave off 7 years, but this all depends on the interest rate.  For my mortgage, if I make biweekly payments, I shave off 6 years and 4 months.  That is close to 7 years.

The author used the following information about the loan.  It is a 30 year mortgage with a 4.5% interest rate.  She doesn’t talk about escrow, taxes, or PMI just to keep the calculations simple.  That is cool with me.  As I indicated, her indication in the postis that you will only save 1.5 years pay making biweekly payments.  I looked at it and thought it seemed very low.  The math has been proven time and time again.  Unless you have a super low rate, like 0%, then making biweekly payments will shave off time.  It is simple math.

I thought I would provide some information in my comment and say that for my loan, I would shave off 6 years and 4 months.  I then did the math for her exact loan information. I  found that if you do biweekly payments, you will shave off 4.3 years. That seems to be more than 1.5 years.  I used multiple tools to get this information.  There is a great calculator at Bankrate, but there are many different mortgage calculators that can tell you this.  I also did the work in Excel just to see if I could match it.  None of the tools, nor my calculations, came up with her low 1.5 years.  I called her out on the math and so did almost every other commenter, but she stuck to her guns.  You only can say so much before you just have to move on.  I know there are plenty of people that have done the extra payments and seen the results.

Simple Savings Sunday #10   Extra Mortgage Payments savings

You WILL Save With Extra Mortgage Payments

While the amount you save in interest and loan length will depend on a wide variety of factors, if you make extra payments on your mortgage, even just one a year, you will cut down how much you pay in interest and how long you will pay on your loan.  It is a simple savings tip.  It is also simple math.

I don’t mind if you come up with a controversial topic, but if you are going to do math in order to back up your entire premise, then do the math correctly.  I work in Excel everyday.  Do you know how easy it is to mess up a math formula?  I am certain that all of the mortgage calculators out there are not wrong.  As I said, it is simple math that is tried and true.  Math typically doesn’t lie and in this case, it will be on your side to make biweekly payments or one extra payment per year.  You will save time and money.

Did you read the article?  What is your take on making an extra payment or biweekly payments?

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Simple Savings Sunday #10   Extra Mortgage Payments savings

About Grayson Bell

I am an average Joe, who built up over $50,000 worth of credit card debt and had to learn how to break it back down. It took 4 years of learning budgets, secrets, and many other personal finance tricks in order to cut the debt to $0. Now, I push to teach others not only how to get out of debt, but how to use credit wisely and how to start growing their wealth. You can view my other site, Sprout Wealth for ways to grow your money. I am also a freelance personal finance writer who provides staff writing and ghost writing services.

18 comments

  1. Great post Grayson. As you know that article didn’t sit right with me either an so I wrote my own post. Extra payments definitely reduce amortization length and they reduce interest costs, though not always the best financial decision in the long run. Jane and I have accelerated weekly payments and make extra principal payments weekly as we’ll. (but you already knew that). :)
    Jack @ SeeJackSave recently posted..Should I make Extra Mortgage Payments or Not?My Profile

    • Thanks Jack. I was happy to read your post. Though it might not be the best financial decision in the long run (entirely on interest rate), not everyone wants a mortgage and whatever they can do to reduce that length is good for them.

  2. I saw the post too and didn’t think the numbers added up, but didn’t do the analysis, so thank for you doing the work Grayson! I just knew that personally we did this on a previous mortgage and it absolutely made a difference and in a relatively short period of time. If you plan to stay in your home for the duration of the mortgage, I think it’s a great strategy to utilize.
    Shannon @ Financially Blonde recently posted..Weekly Round UpMy Profile

  3. Ha – I saw the article but didn’t bother to read it because I knew by the title that it was a bunch of hooey. Thanks for setting the record straight, Grayson.
    Laurie @thefrugalfarmer recently posted..Best Personal Finance Articles for the Week Ending 2/8/14My Profile

  4. Great post! The original post is dangerous because it makes people think that it is not worth paying extra on their mortgage even though in real life, it actually can make a large difference. Thanks for breaking it down and clarifying! I got the same answer when I prepared my own amortization table.

    • Thank you Thias. I saw your comments on the post and I just don’t understand why she was so set on her math. I haven’t found any calculation that came to her same conclusion, so I am going to assume it is wrong until I see otherwise.

  5. I didn’t read the article, because I generally don’t go for articles that are so black and white. Like THIS WILL GET YOU NOWHERE or THE ONLY WAY TO BE SUCCESSFUL, blah blah. There are many different paths and I usually like to take my advice from real people rather than “experts”
    Dear Debt recently posted..Valentine’s Day and Anniversaries on a BudgetMy Profile

    • Black and white articles are very hard to have the point come across. I try to write ones that show what I did and then say that you can do whatever. I wasn’t a fan of the article, but I am sure it brought in some good traffic for Modest Money.

  6. Bi-weekly payment is the same as in the semi-monthly payment but over one year you end up making 26 payments rather than 24 payments. It will save you a small amount of interest and if you can afford that little extra each year, it makes sense to choose an accelerated bi-weekly schedule.

  7. Baa, even if it *only* saved you a year and a half….wouldn’t you still do it? I mean, if you see a dollar laying on the ground do you pick it up, or do you say, “It’s just a dollar” and leave it alone?
    Travis @debtchronicles recently posted..Want To Achieve Your Goals? Improve a Little Each DayMy Profile

  8. I thought that was weird too. I just kept thinking…. “Whaaaaat?”
    Your math makes much more sense, and I know from experience it shortens the mortgage term making more payments. Excellerate the finish line even faster by making a bonus mortgage payment whenever you can! I have a small emergency fund, that I contribute to monthly. If I don’t spend it (yay no emergency) then I apply as much as I feel comfortable to my mortgage. The earlier in the mortgage term, the bigger the impact to interest saved!

  9. We will be purchasing land and having a home built on it soon and we plan to pay cash outright, if for some reason we have to finance the property we will be putting all extra income towards that loan.
    Marvin recently posted..Cost of Vasectomy vs Newborn ChildMy Profile

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