Paying Close To The 15th Saves No Money On Your Mortgage!

July 28th, 2011

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:

Assumptions:
$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.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.​

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2 Responses to “Paying Close To The 15th Saves No Money On Your Mortgage!”

  1. Stephen says:

    Forgive me while I rant, because you should know better than this. You have a lot of good stuff on this website, so I’m not a troll. But this post is absurd.

    If all you are doing with your money is keeping it in a bank account that’s one thing. But if you put it in the stock market or bonds . . . in the long run, much more than .05%

    And why are you with a bank that is only giving .05%? Even though interest rates are very low, you can get at least .5% for checking accounts online.

    Your logic about only getting a saving for one month makes no sense. You are floating the money for about 15 days each month. That’s about about 6 months. You will get about 6 months more interest on the money than if you paid it on the 1st. You know that money today is worth more than tomorrow. How about you give me $3000 for 15 days each month?

    Being late on a loan is a different issue. Auto draft and watch it to make sure it goes through and you won’t be late.

    So, I just want to say again, you have great stuff on this site. But I gotta call bs when I see it.

  2. brianm says:

    Hello Stephen, great feedback, thanks! I don’t usually see blogs with critical feedback, and a blogger can’t grow, change and learn without feedback, both positive and negative. Thanks for taking an interest.

    Most of your points are well made. You are right in that a consumer can get .5% instead of .05% in a checking account of they use an online bank/online account. But I think most consumers, so far, use more mainstream banks or credit unions, who seem to be paying a pittance these days on interest. But even if yields go up, and people can get .5% through a regular bank (and then maybe 1% at an online bank) I still don’t know that there is enough interest lost on an escrowed loan to worry about the money that could have been earned at .5% to 1%. But that is only my opinion, where I may not care about $40 of lost interest ($4000 in annual escrows x .01% = $40) someone else may. I should not push my opinions on others, so your point is well taken. We’ll leave it up to the public to decide what they want to do in each case, but thanks for calling me out on this.

    As to the stock market, I fully agree with you there too. If people are keeping these funds in some sort of stock vehicle, they could be getting 3%-4% returns easily, even in these volatile times. But I was assuming that most people would pull cash from a low yield checking account or maybe a savings account, for a bill like property taxes or homeowners insurance. I don’t think most of us necessarily turn to a higher yield stock account to write a check for property taxes, but it may happen, and your point is well taken here also.

    And I think you are missing the point on “the float.” There is a starting point and an ending point to a loan. If you make 360 payments on a 30 year loan, then you will make 360 payments, no more and no less. Whether you make them on day #1, or day #15, the alleged “float” is imaginary. If you look at this visually on a calendar, you are always going to make 360 payments on a 30 year loan; so waiting until the 15th does not “float” the money each month. Over 360 payments you will have earned the same amount of interest on whatever interest bearing account you are pulling from to pay escrows, you will pay the same amount of mortgage payments, and when you pay them does not change that. There are only 30 years inside of 30 years, you cannot create more time by paying a bill on the 15th instead of the 1st. Another way to look at it is that if there are 360 cycles in a 30 year time frame, you are going to earn interest over those 360 cycles. You are not creating extra cycles (i.e. extra months) by paying a bill later each month. I hope that makes sense. I know its a difficult concept to grasp, and I have as much difficulty explaining it as people do understanding it.

    Thanks again for all feedback, both critical and positive, all is welcome.

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