Friday, December 21, 2007

A real solution to mortgage woes?

A couple of homes ago, I would routinely make double and triple payments on my mortgage, and as the bank sent my my balances, I began to notice that the "next payment due" date wasn't next month, but several months into the future. Concerned and confused, I gave the bank a call, and learned that yes, indeed, my next payment's due date was in fact over half a year away. I got up to about 14 months that I could have taken without payments, I believe.

Unfortunately, my subsequent mortgages have not had this "safety valve," but in light of the recent meltdown, I've got to wonder; why isn't this feature more widespread? Wouldn't it be helpful if borrowers could use the "sunny days" to prepay their debts for the rainy?

Now, granted, borrowers can (and should) save money in their savings accounts and elsewhere--this certainly isn't the only way borrowers can avoid foreclosure. Even so, for those who have difficulty letting their bank balance grow, it would be an awfully nice option.

Merry Christmas too all my readers! Don't forget to read the Christmas story under your favorite whale oil lamp in honor of the Savior's birth and Congress' latest dumb move.


Gino said...

did you know, that if you make 1/2 payment on the 'first', and the other 1/2 on the 'fifteenth', putting you constantly 1/2 month ahead, you save so much interest you will pay a 30yr loan in about 18yrs?

you need to make arrangement with the lender to accept in this manner though, or they will just charge the $$ as coming in on time, instead of it being early.

if payment is due, and you send it a few days early, it still doesnt get credited as being early, and subsequently subtracting from your daily balance that interest in based on, unless the arrangment is made.

jroosh said...

Good post; good question.

As an advisor and in light of anticipated flat real estate growth rates for the next few years I would recommend not paying down your mortgage in an accelerated manner unless:

1) You are nearing retirement and need to get it paid off

2) You have maximized your retirement savings accounts for the year and are on track for retirement

3) have paid off all non-deductible debts

A diversified portfolio, even a fairly conservative one, will increase your net worth and liquidity more quickly than paying down your mortgage for the foreseable future.

Bike Bubba said...

Y'all missed my point; it's not whether it's a good idea or not, but rather whether loans ought to account for the fact that the person paying is ahead of schedule.

Would it have helped those losing their homes now? Probably not for most of them; it's mostly homes where people got in way over their heads to begin with, so to assume they'd have used the "fat cows" to save for the "skinny cows" is optimistic.

That said, though, the sad fact is that in my time of savings, my mortgage prepayments are seriously outperforming my stocks & bonds due to the stock collapse in 1999. Plus, the boomers are starting to does not bode favorably for market returns, does it?