Wednesday, May 20, 2009

Banker's Math: Part Deux

In an earlier blog I described the delightful process of refinancing our mortgage. A few days ago we received an offer from our bank that prompts me to offer a follow up.

The offer was for us to pay the mortgage every two weeks instead of the usual once per month, with each payment being ½ the usual monthly amount. Why, you ask would this be to our benefit? The enticement was that over the course of a year this would amount to 26 payments, the equivalent of 13 monthly payments. That extra payment over the course of the loan would save a considerable amount in interest and result in paying off the loan more quickly.

Now for the fine print. For helping us save all this money, the bank would assess a service charge for each payment, and a one-time start up fee of $299. Cha-ching! Plus, of course, the bank receives more money sooner, which allows it to invest, loan out, pay executive bonuses, etc., etc. Keep in mind, the terms of our mortgage allow additional principal payments at any time for free – if you pay them an additional amount each month it will accomplish the same thing without incurring any charges at all.

The bank’s offer is now confetti at the bottom of my shredder.

1 comment:

Coleen Hanna said...

Pay the house off completely as soon as you can. You will sleep better!