My co-investor wants me to do a bi-weekly schedule on a mortgage at 25 years amortization. I'm more comfortable with monthly -- I have three doors now and I tend to get all my business done in a certain time frame. The cash flow is not huge on the property - only likely a 150/month profit on a 1700 rental house. Is Bi-weekly worth the aggravation? She says we'll save 40k in the long run. I think short term cash flow and keeping a higher net rent. Thank you!
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
5y
Biweekly is a program designed for people that do not know how to manage their finances by tricking them into making an extra mortgage payment every year.
That $40K "savings" she is looking at is from an amortization table. Stinking thinkin. The "savings' is how much less interest you will pay over time. The reason that is terrible thinking is it assumes you do not have the ability to make any money with the cash you kept in your pocket.
If you kept the cash in your pocket and once you had enough you bought another rental property, do you think you could get a return higher than current mortgage rates? Can you do better than 3%? Most real estate investors would laugh at that because it is super easy to double or triple that amount. Assuming you can only get a 6% return on your money it is now "costing" you $40K to pay off your mortgage early because you are losing opportunity to make more money.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
5y
Mortgage interest calculations are particularly unique. They are not like credit cards or other loans. You can’t make a payment on the 20th and save 10 days of interest for payi 10 days early. By the same token, if you pay 10 days late you don’t pay any extra interest.
25 years of bi weekly does result in your making 25 extra payments though. (13 per year instead of 12). So I would assume a bunch of that “savings” is extra money you paid 25 times.
Ps. For every $100,000 you would save $11k paying it off in 25 years instead of 30 years at 3.5%. So if this is a $400k property with zero down their numbers are close. But I’m guessing it isn’t.