I get asked frequently what I think if a client pays their mortgage on the 14th of each month, right before the payment is considered late. This is usually done because people think they are going to save money by keeping the money in their bank account from the 1st of the month through the 14th of the month. It saves $1.25, and that is all! “How so?” you might ask. Below is the math:
$3,000 a month mortgage payment.
Mortgage payment is usually taken out of a checking account.
Checking account interest is maybe .25%; I’ll even say .5% to be generous.
$3,000 x .05% = $15 a year in interest.
But if you delay your mortgage payment to the 14th of the month, you are only saving money for that first month you try this. After that you are paying on the same 30 day cycle you would have, whether it’s the 1st of the month each payment, or the 14th of the month each payment. You only save money the first month for that one month, which in this illustration is $1.25 ($15/12 month = $1.25).
So please realize no matter when you pay, you end up paying in 30 day cycles each month, so don’t pay the 14th of each month! There really is no extra interest earned, none to speak of anyway. I see no benefit at all. You end up risking late fees paying so close to the deadline.
However, you are only risking a late fee (which at 5% of your mortgage payment far outweighs the tiny savings), but you are not reported as late to the credit bureaus until 30 days after the due date. In the end, risking a late fee is silly. Pay on or very close to the 1st of the month, and pay in the same 30-day cycles you would if you paid on the 14th of each month.