Paying down mortgage: Best way to make monthly payments?

[rayvt]

If you make the extra payment in the middle of the month, it gets a little more complicated but if you like fiddling with numbers you can get pretty close. You have to go by when they deposit it.

No, it's not more complicated. They compute the interest on the 1st of each month, based on the principal balance as of that date. It doesn't matter when during the month you paid extra, whether the 2nd or the 30th. The only time this changes is at payoff--they compute per-diem interest then.

It's all right there in the mortgage & note documents.

 

[W2R]

No, it's not more complicated. They compute the interest on the 1st of each month, based on the principal balance as of that date. It doesn't matter when during the month you paid extra, whether the 2nd or the 30th. The only time this changes is at payoff--they compute per-diem interest then.

It's all right there in the mortgage & note documents.

If you say so then obviously it must be, assuming all mortgage documents are identical. As I mentioned, I almost never made an extra payment in the middle of the month so maybe I was thinking of the payoff (I did make the payoff in the middle of the month). At any rate, Chase's computations matched mine very nearly exactly and that I *do* remember since I am [-]tight[/-] [-]stingy[/-] frugal, as you all know. I think the idea to take away from all of this is that IT ISN'T ROCKET SCIENCE, folks! Unless you are concerned about paying a few cents different for the entire mortgage, which comes to an infinitesimal percentage of the original mortgage, I wouldn't worry about the mortgage company gypping you. Just use the blankety-blank
calculator at Mortgage Calculator - Bankrate.com to check.

 

[poplew]

we made are last payment on 7/20/09 and we still getting calls from wells Fargo about late payments its a automated dialer so apparently it is going to take a act of god to stop them. as for how we did it we have used are vacation pay for the last 10 years and sent the money to WF it was almost painless.

 

[W2R]

we made are last payment on 7/20/09 and we still getting calls from wells Fargo about late payments its a automated dialer so apparently it is going to take a act of god to stop them. as for how we did it we have used are vacation pay for the last 10 years and sent the money to WF it was almost painless.

The procedure for making the last payment, at least with Chase, was to call them and get a quote faxed to you. (The last payment is different because they have to reconcile the escrow account.) Then you get that payment to them on time, and they send you a confirmation that your mortgage is paid off.

So, if you just made your last payment as always, you might actually have late payments due. But if you did something similar to what I did, then you probably have some paperwork from Wells Fargo in hand confirming that your house is all paid off.

 

[poplew]

The procedure for making the last payment, at least with Chase, was to call them and get a quote faxed to you. (The last payment is different because they have to reconcile the escrow account.) Then you get that payment to them on time, and they send you a confirmation that your mortgage is paid off.

So, if you just made your last payment as always, you might actually have late payments due. But if you did something similar to what I did, then you probably have some paperwork from Wells Fargo in hand confirming that your house is all paid off.

we did get a payoff and sent a certified check for the last $15,000+ . we also received the original mortgage papers from them with a letter of satisfaction. when i call they don't seam to know why im getting the calls.

 

[W2R]

Sounds like you are fine, then. Their automated system must be cranking these out mindlessly.

 

[rayvt]

Having made that claim, I thought it worthwhile to verify my claim. Lookup up my recent refi papers, and then dl'ed the Fannie Mae/ Freddie Mac Uniform Instruments. Nice-----they are MSWord docs.

The lender does all the interest calculations on the scheduled due dates, which is the 1st of the month. Extra payments over-and-above the required payment goes toward principal. Unlike a simple interest loan like a car loan, the interest is computed as of the balance on the due date, and NOT computed on the average balance or computed from the previous payment.

From Single-Family Uniform Instruments - Freddie Mac
The Note: http://www.freddiemac.com/uniform/doc/3200-MultistateFRNote.doc
Highlights:
* I will make my monthly payment on the ___[typed in: 1st]____ day of each month.
* Each monthly payment will be applied as of its scheduled due date and will be applied to interest before Principal.
* Interest will be charged on unpaid principal until the full amount of Principal has been paid.

The Mortgage: http://www.freddiemac.com/uniform/doc/3004-ArkansasMortgage.doc
There is actually a specific uniform mortgage form for each state. Single-Family Uniform Instruments - Security Instruments - Freddie Mac
Highlights:
* “Periodic Payment” means the regularly scheduled amount due for (i) principal and interest under the Note, [plus T&I escrow].
* If each Periodic Payment is applied as of its scheduled due date, then Lender need not pay interest on unapplied funds.
* All payments shall be applied in the following order of priority: (a) interest due under the Note; (b) principal due under the Note; (c) [T&I escrow]. Such payments shall be applied to each Periodic Payment in the order in which it became due. ... Any remaining amounts reduce the principal balance of the Note.
* Voluntary prepayments shall be applied first to any prepayment charges and then as described in the Note. Any application of payments...shall not extend or postpone the due date, or change the amount, of the Periodic Payments.

 

[rayvt]

... I almost never made an extra payment in the middle of the month ...

Neither have I. But I bet their computer would kick it out because it didn't know what to do with it, and some human would call you and ask what were you wanting to do. (I've had that happen to me on non-mortgage payments.)

They generally won't accept a partial payment and will return the check to you. I've seen that happen when a co-worker tried to send in two half-payments a week apart. This must happen a lot, because stapled to his check was a pre-printed post-it note that said that only a full payment could be accepted. They kicked back both checks, then hit him with a late fee because his [full] payment didn't get there on time. Bummer.

I once called and asked my lender about pre-paying a couple of months ahead because I would be out of town. What I was told was that the entire payments would be applied as extra principal and that I'd get a late fee for the monthly payments that didn't get sent. They had no means to hold my checks until the due date. In fact, this is exactly what the note/mortgage says must happen. Nowdays, I just have it on automatic bill-pay.

 

[Frugality_of_Apathy]

With the way the tax code works it really doesn't pay to pay down on your principal in the early years. By my calculations it works out the same whether you pay extra every month or you just save extra every month and then pay it all off at once. The advantage to paying it all off at once and not slowly is two fold.

Since you maintain a larger amount of debt on the house you aren't going to be tempted to refinance your way into more debt and if something major happens where you need cash or had a budget anomaly that would have caused you to miss or be late on a payment you'll have the money available to pay for that without having to take out a HELOC which would screw over your payment system anyway.

 

[W2R]

... I almost never made an extra payment in the middle of the month ...

Neither have I. But I bet their computer would kick it out because it didn't know what to do with it, and some human would call you and ask what were you wanting to do. (I've had that happen to me on non-mortgage payments.)

Never happened to me with my mortgage. I never had any problems with it. Of course, you are the expert on what happened to YOU with YOUR mortgage.

They generally won't accept a partial payment and will return the check to you. I've seen that happen when a co-worker tried to send in two half-payments a week apart. This must happen a lot, because stapled to his check was a pre-printed post-it note that said that only a full payment could be accepted. They kicked back both checks, then hit him with a late fee because his [full] payment didn't get there on time. Bummer.

Interesting experience. I have never sent in just part of my regular monthly payment but now I know what would have happened, had I done that.

I once called and asked my lender about pre-paying a couple of months ahead because I would be out of town. What I was told was that the entire payments would be applied as extra principal and that I'd get a late fee for the monthly payments that didn't get sent. They had no means to hold my checks until the due date. In fact, this is exactly what the note/mortgage says must happen.

Again, the thought of even attempting something that irregular never entered my mind. From what you are saying, mortgage companies are apparently very sensitive about not getting their regular payments on time. I guess that is because they wonder whether they will eventually need to foreclose or not. During the first year I put mine on automatic deduction from my checking account.

Nowdays, I just have it on automatic bill-pay.

Like that. My extra payments to the principal were sent by snail mail at the same time.

 

[HFWR]

If you make an extra payment, then every payment that follows will have slightly less interest due than the original schedule would indicate, thus slightly more principle will be paid. At least that's how it works at my CU.