Principal Payoff Problem

James and his wife are trying to pay down their mortgage. However, the mortgage company doesn't seem to understand their extra payments are meant for extra principal payments.

QUESTION: James in Texas and his wife are trying to pay down their mortgage. However, the mortgage company doesn’t seem to understand their extra payments are meant for extra principal payments.

ANSWER: You are asking for trouble. You need to do it no more than once a month. Send two checks a month; one for your regular payment and one for principal. You are asking a lot to get them to post it to start with, but if you start sending two or three checks a month, then they are not going to post all of those right. You are increasing the probability of stupid kicking in.

It’s the lowest common denominator that’s doing these keystrokes. You are not dealing with the sharpest knife in the drawer. You have to make it very easy for them. Once a month is fine. That’s all the interest credit you’re getting anyway. The interest is not calculated daily, it’s calculated monthly. You don’t save anything by sending in one every two weeks.

Mathematically, if you only sent them two checks between now and the end of the year for principal, you’re not going to save that much interest anyway. Maybe you’ll save five or six dollars. It’s not that much to try to get them to do it monthly.

What I would do is send my regular payments and, maybe a couple of times, send them a big principal reduction; maybe one every two or three months. Maybe the third one is the payoff. Simplify it for them and don’t ask them to think too much or to execute with excellence too often. You are asking a lot of people who don’t have that capacity.

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