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From: rs55611@ihuxk.UUCP (Robert E. Schleicher)
Newsgroups: net.consumers
Subject: Re: Semi-monthly mortgage repayments
Message-ID: <1026@ihuxk.UUCP>
Date: Fri, 15-Nov-85 14:01:18 EST
Article-I.D.: ihuxk.1026
Posted: Fri Nov 15 14:01:18 1985
Date-Received: Sat, 16-Nov-85 09:44:32 EST
References: <1389@decwrl.UUCP>
Organization: AT&T Bell Laboratories
Lines: 40

> 
> I have recently read about a new type of real estate mortgage agreement,
> in which the bank gives the buyer a mortgage at the normal insterest
> rate for, say, a 30-year, fixed-rate mortgage, but allows the mortgagor
> to pay off the loan semi-monthly rather than once a month.  The total
> monthly payments are the same, they are just split in half and paid
> twice a month.
> 
> The incredible part of this is that you manage to reduce your interest
> so much by paying the loan semi-monthly, that you end up paying only a
> fraction of the total interest you would otherwise have paid, while
> expending the same amount of money per month, and you pay off what would
> have been a 30 year mortgage in something like 12 years.
> 
There are two versions of this type of plan, which I think are being
mixed-up a little in the above discussion.

1.  As described above, you make two 1/2 payments a month.  This provides
    a fair savings in overall interest payments, but not enough
    to pay off the loan in 12 years (it saves several years, though.)

2.  The other variation is that you pay 1/2 of what would have been your 
    monthly bill, but every two weeks (or, alternatively, your old
    monthly bill every four weeks).  This amounts to making 13 months
    of payments every year, and DOES pay off the loan very quickly,
    in about 12 years.  Of course, you're really paying a higher effective
    monthly payment.  In that sense, its not much different that a 15 year
    conventional loan.  It's basically a psychological trick to make the
    payment seem smaller by making them more often.  The reason banks
    and S&Ls don't like these is that their computer systems are often
    geared to monthly operation, with fixed late payment dates, etc.
    Also, it is often inconvenient for the consumer, whose income is still
    on a monthly schedule.


So, before you leap, make sure the terms of this wonder-plan are
understood clearly.

Bob Schleicher
ihuxk!rs55611