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Being a numbers guy, I was always calculating how much I needed to pay monthly once I bought my dream house. I remember a year ago when my wife and I almost bought a house, I was using my pen and paper to write down all the necessary expenses like property taxes, home owners insurance. As a result, I gave my readers an option to calculate all this in an electronic form up at the top of the page.

Fast forward a year from now. I still haven’t bought my house, so the need for a mortgage calculator is still in tact but I found one that puts what I have in shame! Luckily, the website I came across has a free widget that I can embed into my site so I will be implementing that fairly soon on my website for all readers to enjoy.

The tool that I came across can be reached at mlcalc.com. Once you get to the main page, the page provides a clean and simple interface for two main calculators: Mortgage Calculator and Loan Calculator. The only difference between the calculators are that the mortgage calculator lets you put in variables like your down payment, property tax, property insurance and private mortgage insurance (PMI - the bank sometimes requires this if you put in a down payment of less than 20%) which you can see on the left.

Once you click calculate, the results are given in chart and table form so the exact monthly payment is shown like below. Note that I cut off the data after year 2019 to save space but the calculator gives out a full 30 years of data.

The pretty colors and easy to read layout are what originally attracted me to this calculator. However, now that I’ve played around with it, I believe I can easily use this with my internet enabled phone to negotiate with any lender right on the spot whether I’m buying a car or house! If you are always trying to come up with your own way to calculate your mortgage payment, why not give this a spin?

I invited Engineer to do a guest post as he helped answer many of my FICO scores on an earlier article. His site, Engineering My Finances, is dedicated to articles on personal finance and his approach to prepare for retirement. Below is his article about Biweekly Mortgage Payments so check out his site and the article!

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A few years back, my sister told me of an offer from her mortgage company. Basically, the loan would be restructured so that 1/2 of the current monthly payment would be paid every two weeks, to align with the biweekly pay period of most people. Since there are 52 weeks per year, not 48, there are 26 paydays per year. If you make 1/2 month’s mortgage payment every payday, then effectively there are 13 payments made every year instead of 12, the loan is paid sooner, and less interest is paid over the life of the loan.

But there are more details to the offer. There’s a one-time fee of $300 to restructure the loan, and a $6 fee each month to pay for this “service”. The terms of this arrangement require that they automatically draft the money out of your checking account. (How much does that really cost?) These added fees do not reduce your balance, nor are they deductible from your income tax.

There is another approach that won’t impose the extra fees, and the cost is a little bit of planning on your part. Mark your paydays on a calendar. Approximately 1 month in every 6 will have 3 paydays instead of 2. On those months, send in an extra 1/2 month’s mortgage payment, filling out the payment coupon to indicate that the extra payment is to be applied to the loan principal. And if you really, really want to pay the one-time $300 fee and ongoing $6/month, you could add those to your monthly payments marking them to be applied to your principal. A $300 payment early in the loan would knock a few payments off the end of the mortgage period, since most of your early payments apply to interest, not the principal. (An example of the power of compounding, paying the $300 now would save perhaps $1000 in interest over the life of the loan.)

But I also told her that instead of applying any extra money to her mortgage, she should apply it to her credit card balances, which typically impose a higher interest rate and are not tax deductible in any case.

Now I see a recent article by David Bach (”The Automatic Millionaire”) at http://finance.yahoo.com/expert/article/millionaire/39312 . In it, David starts out by pointing out that those who have paid off their mortgage early were able to retire earlier than those who didn’t. Seems plausible to me. But then he goes on to use this as the basis to promote such plans as the one that I advised my sister to reject. He says that these plans cost $200-$400 to set up, and $2.50-$6.95 per payment. Furthermore, he lets on that it’s a third party who handles the transactions.

So let’s review:
– We’ve got a third party involved, which provides yet another opportunity for problems. If they don’t forward your payments, you’re the one on the hook with the mortgage company, and you’re the one out on the street or with a damaged credit report.
– Even at the low end of the setup fee range ($200), how long will it take to recover the cost? If your personal situation changes and in five years you have to sell the house, will you have recovered the setup fee and all of the per-transaction costs?
– Even at the low end of the per-transactions costs, the cost is $65/year. For $65, you can buy a calendar and at the beginning of the year spend 30 minutes circling your paydays, and note which months have 3 paydays. Then a couple of extra minutes each month when you write your mortgage check to look at the calendar you marked up to see how many paydays there were that month. So maybe an hour’s effort though the year, saves you $65 or more.

Even if you can get this service for free from the mortgage company, here are some other negatives that David Bach didn’t mention:
(1) If you have credit card debt, whether at a higher rate or possibly a slightly lower rate than your mortgage, then it makes no sense pay ahead on your mortgage. Why pay off a lower-rate debt for which the interest is possibly deductible from your taxes, when you have higher-interest and/or non-deductible debt that could be paid down instead?
(2) Entering such a plan locks you in to having to make the extra payments. By doing what I suggest, you can defer the extra payments toward principal if something happens. Such as being laid off, in which case you’re no longer getting that paycheck every two weeks.

Let me make it clear that I’m not opposed to paying ahead on your mortgage. In fact, I retired a 30-year mortgage in less than 12 years. I am opposed to taking on unnecessary expenses and risks to do so.

Yes, “automatic” is nice. But David’s so wrapped up in that theme that he won’t mention the negatives. It’s best to question the advice of media finance gurus, and not follow their advice blindly.

Something I have always wondered is what happens to someone’s mortgage when the mortgage lending company goes out of business? Well, to answer my curiousity, I did a little research and figured I will share this with you.

The good news (and bad news to some) is that nothing really changes. The important thing is note is that you still need to send in your payments on-time no matter what kind of trouble your mortgage company is in.

On top of that, the terms of your loan should not change. Even if your mortgage company goes into bankruptcy, it probably just means that your loan has been transferred to some other company.

You should expect a letter from your lending company if they decide to sell your mortgage to someone else, which will outline the new mailing address and payment details.

So in summary, just remember to pay your mortgage payments no matter what happens to your lender to avoid getting charged late fees!