Okay, I will stop with all the personal finance/debt posts for a while after this one but I couldn’t resist. CitiMortgage is giving me some good material lately. I received my mortgage statement today. On the back of the envelope was an advertisement for moving to a 40 year mortgage. Maybe they should market this as The Cradle to the Grave Mortgage. The pitch was that you could use the extra cash flow to pay down other higher interest debt.

I ran the numbers on our $200k mortgage at 6.5% example that I mention below. Adding a decade to the payoff period results in a whopping “extra cash flow” of $93/month. It only lowers the payment by 7% each month! What’s your guess at how much extra interest you will pay out for that “freedom?” The answer is… Read the rest of this entry »

Have you received the offers from your mortgage company that allow you to split your currently monthly payment in half and pay that amount every 2 weeks rather than paying only monthly?

This is a good plan that does work. On a $200k mortgage at 6.5% you would make scheduled interest payments of more than $255k plus the $200k principal over 30 years. With a bi-weekly plan you would save $60k in interest and pay off the mortgage a few years early.

The “catch” with this is that your mortgage company wants to charge you a sign up fee for the privilege of paying bi-weekly. Citimortgage charges $375 plus a $1.50 transaction fee. Using the amortization calculator provided on their website I calculated that if I took the $376.50 and made a one time principal payment instead of paying them for this program it would save me more than $1,200 in interest! There is a better solution. Read the rest of this entry »