Financing in San Francisco>Question Details

Caren, Other/Just Looking in 94114

Should I switch to bi-monthly payments for an interest only loan?

Asked by Caren, 94114 Tue Nov 20, 2007

I currently have a 5 year interest only loan and am set up to pay the amount once a month. Does it make sense to switch to a bi-monthly payment structure in this case?

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Sorry Mario, Caren asked a trick question. Maybe she did not mean to. Bi- monthly Really means every two months.

But I am hooked on semantics. Caren meant semi-monthly OR bi-weekly.

Splitting the interest payment in half and paying it twice a month would do nothing but annoy the mortgage servicer. It would result in no additional principal paydown.

Splitting the payment in half, then paying it every two weeks would eventually result in a month in which 3 payments were made due to the fact that a month is 30 or 31 days 11 out of the 12 months.
There is only one month that equals four weeks. (but none next year)

What it does not make sense to do is to pay $395 (or more) for a computer program to do what a simple 99 cent calendar and a quick visit or phone call to your payroll office can do which is tell you what month you will have three paycehcks.

If you are paid biweekly, and are paid about the same amount every payday, you could make an extra principal payment in those two months a year that you get paid 3 times in the same month.

If you are not paid bi-weekly, then the idea makes very little sense.

It makes more sense to pay additional principal when you have a little extra money that you will not need to ever see until you sell your home or pay it off.

It probably makes much more sense to put that money into a Roth or traditional IRA or a liquid investment that you can acess in an emergency.
3 votes Thank Flag Link Wed Nov 21, 2007
Jim Walker, Real Estate Pro in Carmichael, CA
I agree with Jim. I don't really see the point in doing this. I haven't met one person who was happy that they sunk in their savings or a big bonus to pay down the mortgage. You're cementing your liquid cash into your home's equity which you may or may not get back esp. in this market. That money can be better invested somewhere else in my opionion.
0 votes Thank Flag Link Thu Nov 22, 2007
Absolutely. This is a very simple strategy that will save you interest and will actually start to pay down your interest only loan. Normally there is no paydown. The strategy that you are considering will do this because you will be making higher payments than necessary even though the amount of the payment is the same. It's all about timing right?
0 votes Thank Flag Link Wed Nov 21, 2007
Mario Pinedo,…, Real Estate Pro in Cupertino, CA
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