Bimonthly mortage payments

whisperyJanuary 26, 2004

Hi-

I've been thinking about making bimonthly mortgage payments. When I've read about how much they save you in the end, they make a lot of sense. I would do this on my own instead of paying someone else to do it for me.

But here's my question. We will only stay in this house for two or three more years. I'm not sure it's worth it to do the bimonthly payments. Will it really save us that much money over just 2 or 3 years? I know we will build a bit more equity, but how much will we really save on interest? Would it be more valuable to put that extra money towards higher interest debt?

What do you think?

Thanks,

Kim

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dave_donhoff

Kim,
In virtually all likelihood you'll be far better off stuffing any extra money every month into your retirement investment accounts as opposed to extra payments toward your loan principal.

Our firm does customized & personalized comparison reports for folks with your considerations... and most folks are AMAZED at the difference it ultimately makes in their net worth to direct their discretionary funds to their investments and just leave their mortgage balances alone (at least until they retire and no longer benefit from mortgage interest deductions.)

Hope that helps,
Dave Donhoff
Just some mortgage guy ;~)

    Bookmark   January 27, 2004 at 2:08AM
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joyfulguy

whispery,

I expect that you mean biweekly payments, that is, every two weeks, not every two months.

If you make payments twice a month, you'll make 24 payments per year - but if you make them every two weeks, that makes 26 payments annually. Which accounts for a substantial portion of the reduction in time that it takes to retire the debt.

Ofen the interest rate on mortgage is lower than on some other kinds of debt.

If the difference in rate is not large and the other kind of interest is not deductible, perhaps the difference in deductibility will more than offset the difference in rate - I assume that your mortgage interest is deductible.

If it is credit card debt that you are talking about, it might be preferable to pay down those debts instead, as the rates often run 15 - 18% for general cards, but especially if they are store-issued cards, for the annual rates often run 25 - 28%.

In this area (Canada), some people borrow to invest in a retirement account (interest not deductible) in order to gain the tax deduction. That often is wise if one uses the tax refund to pay down the principal of the loan.

Good wishes as you choose which path to follow.

BTW - learning how money works is an interesting hobby. That pays well.

joyful guy

    Bookmark   January 28, 2004 at 4:28PM
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