The Resting Place.

[MossRoad]

Be careful with that thinking. Many people get into trouble because they think making extra payments allows them to skip. This is rarely the case. It changes the payments on the back end, not the front end. Most institutions will charge late fees and report missed payments if you just skip a payment, even if you have been paying extra. The banks that don't do that are often just applying extra payments the same as a regular payment, just sooner. (Meaning they aren't applying it all to principal). You still finish sooner, but end up paying a lot more. Some make you specify principal only on the extra payment. Caveat Emptor.

Yes. We had to notify them if we were going to skip a payment. If we didn't, it was considered delinquent. And we had to notify them that anything more than the scheduled payment was to be applied to the principle.

And yes, any you decide to skip get added on to the end, and no interest debt is forgiven. So yes, you end up paying more at the end. However, if you're already 250 payments into a 360 payment mortgage, it's mostly principle added onto the end, and not so much interest.

 

[MossRoad]

You are correct in that making extra/early payments does not build-in automatic forgiveness for missed payments. However, amounts paid above the minimum do generally go directly toward principal, in a standard fixed rate mortgage.

Think of your monthly payment as first paying the interest due, with anything above that going toward principal. Some used to write a second check and put "toward principal only", as a belt-and-suspenders measure to ensure that's how it applied, but that is generally not necessary.

Here's another curious one: Some mortgage companies will allow you to convert from monthly to biweekly payments, which can actually save you a good bit over a decade-long (or decades-long) scale, by always shorting the interest accrual at a given principle level by 2 weeks (versus monthly). If you get paid every two weeks, it is worth asking your lender if you can convert to automatic bi-weekly payments. Of course, games like this were always more important back when interest rates were double-digit, versus the majority of the last 15 years.

Yes, we always wrote two checks, one for the complete payment, and one for anything we wanted to go on the principle only, with notation. That's how the mortgage company requested we do that.

As for the two week half payments, again, yes.

12 months with full payment in a year.
52 weeks.
Half of 52 is 26.
26 half payments = 13 full payments.
Knocks a lot off the end of the mortgage.

 

[goeduck]

I recall my original 30-year loan had paperwork with a printed payment schedule in it that showed the principal and interest columns. These days such a schedule would probably be buried in an on-line link where few see it. I recall paying about 15 years of that principal off in the first few years and considered it fun. In the later years I just made the standard payment and I recall them sending a check back telling me to write a smaller one as the final payment, my loan was then paid off.

 

[WinterDeere]

As for the two week half payments, again, yes.

12 months with full payment in a year.
52 weeks.
Half of 52 is 26.
26 half payments = 13 full payments.
Knocks a lot off the end of the mortgage.

Yes, that's a big part of it, but my IIRC there's more to it than just that, although I'll admit it's been about 20 years since I did the long math on this. Essentially, with skewing roughly half of each payment 2 weeks ahead of when it would otherwise land, you're also saving the time over which that month's interest can accrue, or put otherwise reducing the amount which accrues in the second half of the month. Admittedly small amounts each month, the extra payment per year is probably the larger of the two effects.

 

[Fuddyduddy1952]

I couldn't wait to buy my first (and only) house. Once approved I was elated until that mortgage realization hit. I stayed at my parents while I worked on the house making it livable, it needed a well pump I installed & did plumbing & electric work which I did.
I went next door to talk to my wise grandfather (a physician) and he said "Here's a cigar box. There are 20 working days a week so put $20 in it every day. There's your mortgage payment."
I never forgot that...little bits of money saved over time. $10 doesn't seem like much, but saved every day for 10 years buys a new car.
Advice to the young is buy a little house in a good area. You can always add an addition later. Anything you can do yourself saves lots of money, especially if the guy marries the right girl and they can work together doing things.

 

[Jstpssng]

Be careful with that thinking. Many people get into trouble because they think making extra payments allows them to skip. This is rarely the case. It changes the payments on the back end, not the front end. Most institutions will charge late fees and report missed payments if you just skip a payment, even if you have been paying extra. The banks that don't do that are often just applying extra payments the same as a regular payment, just sooner. (Meaning they aren't applying it all to principal). You still finish sooner, but end up paying a lot more. Some make you specify principal only on the extra payment. Caveat Emptor.

I only have a small 10 year mortgage but when I started paying extra I discovered they apply it to my escroe... even though I generally get some of that back every year.
Now I pay it to myself and will pay the entire thing off when my account matches the principle.

 

[MossRoad]

I couldn't wait to buy my first (and only) house. Once approved I was elated until that mortgage realization hit. I stayed at my parents while I worked on the house making it livable, it needed a well pump I installed & did plumbing & electric work which I did.
I went next door to talk to my wise grandfather (a physician) and he said "Here's a cigar box. There are 20 working days a week so put $20 in it every day. There's your mortgage payment."
I never forgot that...little bits of money saved over time. $10 doesn't seem like much, but saved every day for 10 years buys a new car.
Advice to the young is buy a little house in a good area. You can always add an addition later. Anything you can do yourself saves lots of money, especially if the guy marries the right girl and they can work together doing things.

Yep. It's like buying a pop at work in a vending machine VS the store. Pop at the store is 50 cents a bottle. Pop in the vending machine is $1.65.
Do that every day.
.50 X 5 = $2.50/week = $130 per 52 week year.
1.65 X 5 = $8.25/week = $429 per 52 week year.

That's $299 per year more.

And that's just pop. Candy bars. Burgers. Tacos. You name it. Bring you lunch VS buying it saves thousands per year.

 

[daugen]

it takes a long while for the satisfaction of an increasing savings balance to beat the thrill of a new purchase. If you want to retire comfortably and stop worrying about money, you have to be very good about saving.
For me that was 30 years of IRAs always maxxed out. Plus more.
Now that I'm retired and on a distinctly limited income, it's the debt that is more important, not the income. Try to stay out of debt, get it paid off, and only owe a little on time, enough to keep your FICO score high.

my last seven years of working was as a CFP doing financial planning in a faith community. Two families bought my services as presents to their kids, realizing that if they knew at their age what the parents took 30 years to figure out, starting early is the key.

 

[MossRoad]

Charlie Munger, investing genius and Warren Buffett's right-hand man, dies at age 99

"We think so much alike that it's spooky," Warren Buffett once said of Munger.

www.cnbc.com

 

[riptides]

Yep. It's like buying a pop at work in a vending machine VS the store. Pop at the store is 50 cents a bottle. Pop in the vending machine is $1.65.
Do that every day.
.50 X 5 = $2.50/week = $130 per 52 week year.
1.65 X 5 = $8.25/week = $429 per 52 week year.

That's $299 per year more.

And that's just pop. Candy bars. Burgers. Tacos. You name it. Bring you lunch VS buying it saves thousands per year.

The key is lettuce. Splurging was a salad. Adding carrots or a radish was over the top.