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In Reply to: Bi-weekly mortgage rip-off posted by steve on July 30, 2001 at 10:52:40:
I enjoy this ongoing position that a biweekly mortgage is the best thing and paying it off is the greatest concept. Because, if I understand correctly, people are strapped because of their mortgages? No. If they are, they got too big a house.
Paying off a mortgage sooner is actually a bad idea. First off, consider a scenario in which 2 people have identical mortgages. The first person pays bi weekly and also an additional $50 a month, opting for a shorter mortgage, say 15 years. The second person, pays the regular, monthly payment for 30 years.
Now, the first, with the shorter mortgage will have a larger principal payment than the longer mortgage person, due to the difference in terms. As a result, tax deductibility is increased in the case of the longer mortgage, resulting in a lower net mortgage. Moreover, the additional money saved in paying taxes and also monthly payments will help this person save.
What if the person with the shorter mortgage went on disability and had no coverage? What would pay their payments? Nothing since they never saved. Yet, the person who'd been saving could at least have a roof over their head for several years before worrying about sufficient money.
So you see, worrying about terms and interest rates are fine and dandy, but a bigger mortgage won't hurt you or put you in jeopardy of losing your home. By paying quicker, you lose the benefits afforded by tax deductions as well as money that could have been used for a myriad of other things, such as starting a retirement plan or college funding.
People are not strapped by mortgages, but by credit card debt and their own need to spend all they have rather than save it. We should learn to work on our habits rather than solve problems that don't seem to exist.