Mortgage Trick


You’ve seen the ads: Pay off your mortgage faster, Bi-weekly mortgage, Take years off your mortgage, etc.

Well, here is the secret to the way these programs work.

You pay someone a set-up fee of $200-$400 or even more. What they do is set it up so that you automatically pay in half your monthly mortgage amount every two weeks. Then at the end of the year, they make an extra payment for you. That’s what they say.

What actually happens is this: the agent usually gets half the fee you pay, and sometimes more. The company (which is NOT a bank) then sets up a special bank account, THEIR bank account, into which goes YOUR money. Each month they pay your mortgage on time from the accumulating money in THEIR account with YOUR money in it. If they are able to collect the payments from you bi-weekly, by the end of the year they have another whole mortgage payment amount, which they add to the 12th monthly payment, earmarking it “additional principal”.

So say your mortgage is $500 a month, and we started this in January, they would send an additional $500 on the principal with the regular payment in December.

That sounds pretty good, and it would reduce your principal by $500 per year, which over a 20 year mortgage is $10,000, plus the interest you save on that amount over 20 years.

What’s the catch?

Well, hmm, during the year, what happens to your money that’s slowly building up in their account to make that end of year payment?

It’s gathering interest, of course. For you, right? WRONG! That money is YOUR money, gathering interest for THEM, and you paid $400 for the privilege!!


Guess what? There is another way, and you can do it yourself, and it can save you thousands in interest, and dramatically reduce the time it takes for you to pay off your mortgage.

It’s silly simple. Don’t be embarrassed. Just add from $25-$50 or more if you can afford it, to your mortgage payment each month, and write it in the little box that says “additional principal” on your payment slip.

UPDATE TO THE ABOVE PARAGRAPH: I no longer do it quite this way, since I learned that on my current mortgage EVERYTHING over the standard amount is tagged as additional principal.

Additionally, check out my son’s Early Payoff Mortgage Calculator. You can enter all your values including taxes and insurance and figure out the amount of every single payment, for every single month, right down to the penny. Also figure out your total interest savings, of course. When the bank says you owe so and so, you can tell them they’re wrong.

KEEPING YOUR PAYMENTS MANAGEABLE: The escrow account is where your monthly tax and insurance payments go. If the taxes or insurance go up, and you have been paying last year’s amount, your payment will go up for next year to make up the difference! I wanted to add a few dollars a month to the escrow amount and wrote it in, only to find out 6 months later that it was being tagged as another additional principal payment! After fuming for a few minutes I asked how to add other kinds of items to the payment, and was told I needed to use the code number for each thing. I asked for a list of the code numbers and some special slips for this purpose. They acted like I had discovered some secrets from the inner sanctum and tried to ignore me to see if I would go away. But since I appeared to be prepared to stand there all day they reluctantly gave me some. The first THREE MONTHS after that, every person I handed the extra slip to TOLD me this wasn’t the way to do it, that all you have to do is write it in as “additional escrow” on the regular slip. I patiently explained that doing that DID NOT WORK and the manager had given these to me. They are still trying to maneuver me out of doing this. Stick to your guns and insist. Also, every few months, CHECK to make sure your payments are going where YOU want them to. After all, it is YOUR MORTGAGE. This takes a few minutes or maybe a couple of hours if the bank wants to play games with you, but when you are holding your mortgage in your hand paid several years early, believe me it will be worth it. I had a free and clear house once and there is no feeling like it.

This reduces your principal every month, not just once a year. It saves you about the same in interest, and you don’t have to worry about that big chunk once a year. Once I had a mortgage in Florida. I added $25 a month to the payment for 2 years, and it took 7 years off the mortgage! I think that’s pretty good.

On a $500 payment, if you add $40 a month to it, that’s manageable, and you will reduce the principal by $480 a year. You can add more if you want.

To figure all this out, you will need to use what is called a mortgage calculator. I had one posted here but I was told it didn’t work after a while. You can put the words “Mortgage Calculator” in quotes in your search engine and find one. Fill in only the principal amount, interest rate, term of the loan (how many years), first payment date, and optional prepayment amount. Then hit the calculate button. You can obtain the results of adding a prepayment amount once a month or once a year.

For example, if you have a mortgage of $50,000 at 7% for 20 years, adding $500 once a year to the principal payment will save you $9076.22 in interest and take 3 years and 8 months off the mortgage.

If you add the 500 to your payment at $41.66 a month, it saves you slightly less in interest and takes the same years off the mortgage!!! And it’s a lot less painful than trying to come up with a whole extra payment at the end of the year!

Check out your own mortgage and then do it yourself and save!!!

e-mail me if this page helps you!! I’ll post your story here if it will help someone.