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Fabulous-Ad6844 t1_ixx5z0f wrote

Interest is calculated on daily outstanding balance. So you’ll accrue more interest. Inversely if you pay every two weeks you shave some interest off. Though you have to make sure they do it as some places will just hold the payment.

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Brandon432 t1_ixxhvdj wrote

Absolutely 100% false for mortgages

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AlanPavio t1_ixxj3mw wrote

It’s amazing that this is said almost every time someone talks about mortgages and interest. The vast majority of mortgages are not simple interest - I think people get used to it being that way with car loans and then assume it’s the same with their mortgage.

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Brandon432 t1_ixxk67f wrote

Right. Even my biweekly payment does not save interest because I pay half the balance two weeks early every month. It saves interest because I make two extra payments per year and pay off the whole thing six years early.

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GaiusPrimus t1_ixxvz9p wrote

This isn't true everywhere, which is most likely the cause why it gets brought up.

Canada is mostly simple interest mortgages.

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Fabulous-Ad6844 t1_ixxvtj5 wrote

“Note A bimonthly mortgage may also save you some interest if your mid-month payment is applied to your principal when the lender receives it. However, most lenders offer bimonthly mortgages as a tool of convenience and don’t apply your payments until the end of the month—which means a bimonthly mortgage typically doesn’t lead to interest savings.”

https://www.thebalancemoney.com/what-is-a-bimonthly-mortgage-5210262

Depends on the lender.

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Brandon432 t1_ixxxjkp wrote

4 properties, 7 mortgages (inc refi and HELOC) and probably 20 servicers. Haven’t found a lender that applies payment mid month.

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Fabulous-Ad6844 t1_ixyld0n wrote

I did. I’d pay extra mid monthly & confirmed with them it would reduce the principal & the interest calculated from that day.

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Brandon432 t1_ixz45xn wrote

We are saying different things. If you pay EXTRA, yes, it will reduce your principal and interest. If you simply pay EARLY, it will not.

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Fabulous-Ad6844 t1_ixzb3xp wrote

Well an extra payment is an “early payment”. But I understand that some institutions won’t apply an early payment to reduced outstanding Principal.

Fun fact - in Australia they have what they call “Mortgage Offset” accounts. Basically it’s like a savings account, but instead of earning interest it is offset against the outstanding Principal of your mortgage on daily interest calculations. Thereby you “earn”the interest rate of your mortgage. I was very surprised the US doesn’t have these. They’re great because you can almost pay off your mortgage but still pull the funds out instantly if you need them.

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gundamstar1 OP t1_ixx72w2 wrote

Interesting - did not know about this. Will check if WF holds or not.

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