Real Estate and Home Mortgages - Paying mortgage company every week instead of every month?

I just refinanced a 30 year with Wells Fargo.

Just wondering, what would happen if pay weekly one fourth of the monthly payment.
Wouldn't I effectively prepay my loan and reduce the interest paid over time?

Depends on the contract..but yes, thats normally how it works. There are many calculators out there that let you look at the differences.

I've seen several places that going to a bi weekly payment (26 per year vs 12) will pay off a 30 yr mortgage in about 18-20 years. There is also the option of making your regular payment and adding on a certain amount to be applied to just the principal. Or just sending an additional payment when possible and apply it to the principal.

The one thing you don't want is to lock into a payment schedule that you can't meet.

Seems like a no-brainer to pay weekly if they allow this without a charge. My effective monthly payment stays the same.

Does this work when I setup the payment or only if the mortgage company withdraws from my bank account?

I think you need to check with your lender for further info. Most have the options mentioned...they just want their money.

I looked into this when we received or mortgage from Wells Fargo, they had a bi-weekly payment and said that we would pay it off sooner since you would make 13 payments a year vs. 12. Well, I can't remember, but my question is, does that 13th payment go towards principal only or principal and interest? Because if it goes towards principal and interest, you are better off just making a 13th payment without the plan since it would just go towards principal.

I think if you try to pay weekly without it in your mortgage agreement you would quickly receive a phone call stating that you need to pay your full mortgage.

It also may make no difference in the long run; the lender may simply hold each weekly payment until it adds up to the month's payment and then apply it.

Only had a couple of mortgages..but they all had a spot either on the form or online where you could make an additional payment to the principal, escrow, interest or whatever.

Some lenders charge extra for switching to a bi-weekly payment schedule. It means extra work for them. A simple way I've done in the past: First, request an amortization schedule from your lender/servicer. You can get one from numerous programs on-line but I've always felt that getting it from the lender helps ensure you're both on the same page whenever you start. The payments will be numbered on the amort. schedule. Find out where you are now ... if your next payment is your first one, or 26th or whatever. Make the next payment as normal. Check off that payment number on your schedule. At the same time make a seperate additional payment only for the principle amount of the next scheduled payment # and check that one off. Next month move on to the next payment number that is not checked off (ignore the stated due date on the amort. schedule - you will be paying ahead of the due dates listed there). This serves the same purpose as a bi-weekly but doesn't obligate you for the extra payment each month and doesn't cost additional fees. It also keeps the math simple and your amortization schedule is always correct. If you want to pay down more one month, in your seperate additional payment you can pay the next 2, 3 or 12 months principle portions in that single payment. Always be clear with the lender (we used to write it on the checks) that the additional payment made is only for principle reduction. One of the benefits of having and following an amortization schedule is that you will always know what your principle balance is, so it's easy to check year-end statements from the lender for errors. It's also kind of fun in the early years when the principle portion is small to lop off (pre-pay), and extra 6 or 12 months worth of principle for relatively little dough. The ealier years of a mortgage are also where you can have the greatest impact on interest savings by paying down interest. Of course there's a downside to this method, and that is you have to be disciplined enough to do it yourself and to do it consistently to reap the greatest interest savings.

Hi destruct05. At the risk of disagreeing with several of the posted comments, there is simply no magic to bi-weekly payments. It is simply a process of calculating the interest due on the balance due. As Melissa said, bi-weekly adds up to an extra payment each year which is what accumulates over time to pay off your mortgage early. The secret, if there is one, is what TJMako said you have to be "disciplined". If you are disciplined, then the math, not the magic, will be to your strong advantage. 30, 40, and now 50 year mortgages were invented by banks (I'm not really sure) to profit from the masses wanting to live the American Dream years before they can afford it.

Keep it simple:
1. pay on time to keep your credit perfect
2. build up a nest egg (cash cushion) for emergencies. Opinions will vary, but 6-months income is a good number.
3. Determine what your lender is willing to do (suggested by many).
4. Be disciplined and set up a payment plan for extra payments that you can live with.
5. pay off high interest debt first. mortgages are usually the lowest interest rate you pay. Credit cards, auto loans, and others need to be paid first.
6. create a budget, not necessarily to limit what you spend, but to learn where you are spending. It's part of being disciplined.

Good Luck,
Bud

When you have a bi-monthly mortgage, the banks generally require that you have the payments auto-drafted from your account. They can't keep up with billing you that often. You could set up a separate account just for this purpose and put money in it weekly if you get paid that way.

Despite what has been written, paying bi-monthly is greater than that "one extra payment" per year due to the way loan interest is calculated. On a thirty year loan, your loan will be paid off in about 18 years. Every two weeks, the principal portion will be deducted and the interest recalculated.

Making the extra principal payment as suggested doesn't always work since many banks take this principal payment off the end of the loan thus not re-calculating the current principal and interest portions of your payments. You need to be sure to ask your lender how they calculate these extra payments.

Good Luck!

Cecilia

Just for clarification:

Bi-monthly means every two months
Semi-monthly means twice a month
Bi-weekly means every two weeks.

Paying more often than required will reduce the term of the loan by reducing the accrued interest and thus increasing the percentage of your payment going to principal.