Paying debt weekly rather than monthly

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Clarice
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Paying debt weekly rather than monthly

Post by Clarice »

Thanks folks.

Just bought a house. 30 yr fixed. Got a letter in the mail advertising paying mortgage weekly would shave 12 years off the mortgage and therefore a ton of interest dollars. I guess it makes sense - that a lower immediate balance within the month would accumulate less interest.

Unfortunately the letter is from a third party (not the service for lender), otherwise I’d sign up right away. Still need to call servicer.

That being said - anyone here ever approach their monthly payment on a weekly basis? Student or mortgage?

Curious I’ve never seen this discussed. Could be a big deal... I wouldn’t mind logging in 4x a month to shave 12 years off my mortgage if there was no auto-pay feature available. Shoot even if there were processing fees it might be worthwhile...

Thanks !
buhlaxtus
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Re: Paying debt weekly rather than monthly

Post by buhlaxtus »

It's a gimmick. Pay a bit more toward principal every month, and you'll get the same effect, plus you'll save whatever fees these people are going to charge.
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ResearchMed
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Re: Paying debt weekly rather than monthly

Post by ResearchMed »

Clarice wrote: Sun Jun 30, 2019 9:16 am Thanks folks.

Just bought a house. 30 yr fixed. Got a letter in the mail advertising paying mortgage weekly would shave 12 years off the mortgage and therefore a ton of interest dollars. I guess it makes sense - that a lower immediate balance within the month would accumulate less interest.

Unfortunately the letter is from a third party (not the service for lender), otherwise I’d sign up right away. Still need to call servicer.

That being said - anyone here ever approach their monthly payment on a weekly basis? Student or mortgage?

Curious I’ve never seen this discussed. Could be a big deal... I wouldn’t mind logging in 4x a month to shave 12 years off my mortgage if there was no auto-pay feature available. Shoot even if there were processing fees it might be worthwhile...

Thanks !
I'm not sure it works that way (interest calculated from the date the payment is received).

However, the savings should come from paying more each year. If the lender takes the monthly payment and divides it by 4, and then you pay weekly, you are then making 52 payments, rather than 12 x 4 (monthly payments of same total) = 48 payments equivalent.

You could do the same yourself by saving the money each month and once a year, send in an extra payment (specifying that the money should go to PRINCIPAL, and *NOT* to interest).

RM
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Clarice
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Re: Paying debt weekly rather than monthly

Post by Clarice »

ResearchMed wrote: Sun Jun 30, 2019 9:22 am
Clarice wrote: Sun Jun 30, 2019 9:16 am Thanks folks.

Just bought a house. 30 yr fixed. Got a letter in the mail advertising paying mortgage weekly would shave 12 years off the mortgage and therefore a ton of interest dollars. I guess it makes sense - that a lower immediate balance within the month would accumulate less interest.

Unfortunately the letter is from a third party (not the service for lender), otherwise I’d sign up right away. Still need to call servicer.

That being said - anyone here ever approach their monthly payment on a weekly basis? Student or mortgage?

Curious I’ve never seen this discussed. Could be a big deal... I wouldn’t mind logging in 4x a month to shave 12 years off my mortgage if there was no auto-pay feature available. Shoot even if there were processing fees it might be worthwhile...

Thanks !
I'm not sure it works that way (interest calculated from the date the payment is received).

However, the savings should come from paying more each year. If the lender takes the monthly payment and divides it by 4, and then you pay weekly, you are then making 52 payments, rather than 12 x 4 (monthly payments of same total) = 48 payments equivalent.

You could do the same yourself by saving the money each month and once a year, send in an extra payment (specifying that the money should go to PRINCIPAL, and *NOT* to interest).

RM
Do you really have to specify principal if there is $0 of accrued interest? What would they do, sit on the cash and then apply it to interest? So messed up but hey I believe it. I would obviously specify principal anyway but curious to know just another example of covert lending practices.
buhlaxtus
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Re: Paying debt weekly rather than monthly

Post by buhlaxtus »

I have always paid by automatic debit, and when setting it up there has always been a very clear way to specify extra payment to principal. You might find some bank who defaults to saving overpayments to apply to the next month's bill, which is a bad deal for you, but if they do that you can straighten things out one way or another.
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ResearchMed
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Re: Paying debt weekly rather than monthly

Post by ResearchMed »

Clarice wrote: Sun Jun 30, 2019 9:26 am
ResearchMed wrote: Sun Jun 30, 2019 9:22 am
Clarice wrote: Sun Jun 30, 2019 9:16 am Thanks folks.

Just bought a house. 30 yr fixed. Got a letter in the mail advertising paying mortgage weekly would shave 12 years off the mortgage and therefore a ton of interest dollars. I guess it makes sense - that a lower immediate balance within the month would accumulate less interest.

Unfortunately the letter is from a third party (not the service for lender), otherwise I’d sign up right away. Still need to call servicer.

That being said - anyone here ever approach their monthly payment on a weekly basis? Student or mortgage?

Curious I’ve never seen this discussed. Could be a big deal... I wouldn’t mind logging in 4x a month to shave 12 years off my mortgage if there was no auto-pay feature available. Shoot even if there were processing fees it might be worthwhile...

Thanks !
I'm not sure it works that way (interest calculated from the date the payment is received).

However, the savings should come from paying more each year. If the lender takes the monthly payment and divides it by 4, and then you pay weekly, you are then making 52 payments, rather than 12 x 4 (monthly payments of same total) = 48 payments equivalent.

You could do the same yourself by saving the money each month and once a year, send in an extra payment (specifying that the money should go to PRINCIPAL, and *NOT* to interest).

RM
Do you really have to specify principal if there is $0 of accrued interest? What would they do, sit on the cash and then apply it to interest? So messed up but hey I believe it. I would obviously specify principal anyway but curious to know just another example of covert lending practices.
I don't know if it is still necessary, but it's just safer... don't give them a chance to have them credit you with pre-paid interest, for example, while not reducing your principal - as *that* is where YOUR savings would come from (and thus less for them, long term).

And I've never experienced it myself, so perhaps even decades ago it was an urban myth. But I don't see any downside to it. Like you wrote.... those pesky "covert lending practices" that some lenders can figure out...

BTW, I hadn't really heard much about "weekly", but I was more familiar with the bi-weekly, which saves similarly, and that also matches up with the income of people who are paid every 2 weeks, so it might work well for them for the budgeting, too.

RM
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Nate79
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Re: Paying debt weekly rather than monthly

Post by Nate79 »

Unlike other types of debt where interest accrues daily, mortgages accrue interest monthly. Meaning making extra payments during the month does nothing different than if you made all those extra payments once a month.
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Re: Paying debt weekly rather than monthly

Post by rocket354 »

Mortgages still accrue interest daily. It just gets reported monthly. If you sell/buy/refinance/pay off a mortgage, you're definitely going to pay per diem interest for partial months.

But, yes, you want to make sure your payment is specified as being applied immediately, rather than towards the next payment. I had this issue recently. I sent in my monthly mortgage payment plus an extra $5000 all at once. I noticed a little less than half of that $5000 went to principal. What they did is they counted that $5000 against future payments. Since I sent it in on Feb 1, they applied it in such a way that I would not have owed a March 1 or an April 1 payment. I had to call and have them re-apply the extra payment as all going towards principal. And, thus, giving myself the obligation of March and April payments again.

And, yes, if you are able to split your payment up to bimonthly or 4x/month and have it applied immedately you will save some on interest. It may or may not be easy depending on your servicer. As others have noted, just making extra principal payments along with your monthly payment each month is likely the easiest way to get your mortgage paid off significantly quicker.
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Re: Paying debt weekly rather than monthly

Post by abuss368 »

buhlaxtus wrote: Sun Jun 30, 2019 9:19 am It's a gimmick. Pay a bit more toward principal every month, and you'll get the same effect, plus you'll save whatever fees these people are going to charge.
This is what I have seen as well. You can often calculate the impact and adjust without additional fees or the cost of refinancing.
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Re: Paying debt weekly rather than monthly

Post by quantAndHold »

The whole weekly/biweekly payment thing can work well for people who get paid weekly or biweekly. IIRC, biweekly payments will pay the mortgage off 9 years early, because you’re effectively making an extra payment every year.

That said, if you get paid biweekly, it’s easy enough to do on your own. In the months you get a third paycheck, pay 1.5 times the normal amount.

Every mortgage I had, the lender offered to convert it to biweekly. If I were so inclined, I would do it through the lender, not a third party.
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Re: Paying debt weekly rather than monthly

Post by HomeStretch »

As others have noted, you can do this yourself by adding additional money to your monthly payment specifically designated as a principal payment.

If you start early enough, it is amazing how just a small extra payment can significantly reduce your mortgage term. Starting with the 1st payment, I paid an extra $25/mo (~ 1% of regular monthly payment) and it knocked 7 years off a 30-year term. Paying weekly rather than monthly will lower interest paid/shorten term further.

If you make extra principal payments, suggest you set up an amortization table spreadsheet (I used excel) to track the payments and remaining principal balance. Reconcile periodically to lender’s online records to make sure your extra payments are being applied correctly. I also tied the interest paid per my spreadsheet to the annual tax statement from my lender of mortgage interest paid.
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Re: Paying debt weekly rather than monthly

Post by abuss368 »

ResearchMed wrote: Sun Jun 30, 2019 9:22 am
Clarice wrote: Sun Jun 30, 2019 9:16 am Thanks folks.

Just bought a house. 30 yr fixed. Got a letter in the mail advertising paying mortgage weekly would shave 12 years off the mortgage and therefore a ton of interest dollars. I guess it makes sense - that a lower immediate balance within the month would accumulate less interest.

Unfortunately the letter is from a third party (not the service for lender), otherwise I’d sign up right away. Still need to call servicer.

That being said - anyone here ever approach their monthly payment on a weekly basis? Student or mortgage?

Curious I’ve never seen this discussed. Could be a big deal... I wouldn’t mind logging in 4x a month to shave 12 years off my mortgage if there was no auto-pay feature available. Shoot even if there were processing fees it might be worthwhile...

Thanks !
I'm not sure it works that way (interest calculated from the date the payment is received).

However, the savings should come from paying more each year. If the lender takes the monthly payment and divides it by 4, and then you pay weekly, you are then making 52 payments, rather than 12 x 4 (monthly payments of same total) = 48 payments equivalent.

You could do the same yourself by saving the money each month and once a year, send in an extra payment (specifying that the money should go to PRINCIPAL, and *NOT* to interest).

RM
Right. Our bank holds our payment and applies the additional amounts towards principal at the end of the month.
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Re: Paying debt weekly rather than monthly

Post by Earl Lemongrab »

Clarice wrote: Sun Jun 30, 2019 9:16 am Thanks folks.

Just bought a house. 30 yr fixed. Got a letter in the mail advertising paying mortgage weekly would shave 12 years off the mortgage and therefore a ton of interest dollars.
Why do you think that is worthwhile goal? You save interest at the expense of reducing your available money for investing. You could have saved even more interest with a 15-year loan, as that would have a lower rate.

The way the weekly/bi-weekly schedules work is that you end up making one extra payment per year over monthly. So you can just do that. You sure don't need a third-party processor charging a fee. If you really want this, then calculate a monthly payment divided by 12 and add that much as principal each month. No need for weekly payments. If you're paying online then it's much easier that way.
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Re: Paying debt weekly rather than monthly

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rocket354 wrote: Sun Jun 30, 2019 9:48 am Mortgages still accrue interest daily. It just gets reported monthly.
False. Mortgages are a rather unique debt instrument today in that regard. Paying principal on day 2 of a month vs. day 29 will not change the amount of interest you pay for that month.

The OP's point, the effect of paying on your mortgage weekly instead of monthly only helps you because the former results in you making one extra monthly payment, which will go entirely to principal. This effect is especially pronounced in 30 year mortgages compared to shorter term mortgages since you're paying so little principal in the initial years. After making payments for 10 years on a 30 year mortgage at 4%, your principal balance will still be almost 79% of your starting balance.
Last edited by willthrill81 on Sun Jun 30, 2019 6:31 pm, edited 1 time in total.
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Re: Paying debt weekly rather than monthly

Post by abuss368 »

Mortgages are different in terms of interest calculation and not like other simple interest loans. Paying on day 3 or day 13 does not matter. Interest does not change for the month.
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Re: Paying debt weekly rather than monthly

Post by rocket354 »

willthrill81 wrote: Sun Jun 30, 2019 6:27 pm
rocket354 wrote: Sun Jun 30, 2019 9:48 am Mortgages still accrue interest daily. It just gets reported monthly.
False. Mortgages are a rather unique debt instrument today in that regard. Paying principal on day 2 of a month vs. day 29 will not change the amount of interest you pay for that month.
Er, have you ever bought or sold a home with a mortgage on it? You pay interest up to (or from) the exact day of the transaction. If you pay off a mortgage, they have to give you a payoff amount that is different from the last reported balance...because interest has accrued.

If you are talking about grace periods for a payment, that just means they are willing to accept a payment within a certain time and still treat it as if it were paid on the first. That does not mean interest isn't accruing or you won't have to pay it in other circumstances.

Different institutions that service loans may make paying bi-monthly easier than others. Some "allow" it in the sense that you can structure your payments to essentially make a half-payment earlier to avoid some interest, with the remainder on the first. Some don't make it so easy.
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Re: Paying debt weekly rather than monthly

Post by willthrill81 »

rocket354 wrote: Sun Jun 30, 2019 8:07 pm
willthrill81 wrote: Sun Jun 30, 2019 6:27 pm
rocket354 wrote: Sun Jun 30, 2019 9:48 am Mortgages still accrue interest daily. It just gets reported monthly.
False. Mortgages are a rather unique debt instrument today in that regard. Paying principal on day 2 of a month vs. day 29 will not change the amount of interest you pay for that month.
Er, have you ever bought or sold a home with a mortgage on it? You pay interest up to (or from) the exact day of the transaction. If you pay off a mortgage, they have to give you a payoff amount that is different from the last reported balance...because interest has accrued.

If you are talking about grace periods for a payment, that just means they are willing to accept a payment within a certain time and still treat it as if it were paid on the first. That does not mean interest isn't accruing or you won't have to pay it in other circumstances.

Different institutions that service loans may make paying bi-monthly easier than others. Some "allow" it in the sense that you can structure your payments to essentially make a half-payment earlier to avoid some interest, with the remainder on the first. Some don't make it so easy.
Most mortgages do not accrue interest daily. Those that do are called simple-interest mortgages, but they are not common in the U.S.
The standard mortgage in the US accrues interest monthly, meaning that the amount due the lender is calculated a month at a time.
https://www.mtgprofessor.com/a%20-%20in ... entals.htm
A simple-interest mortgage is a home loan with the calculation of interest is on a daily basis. This mortgage is different from a traditional mortgage where interest calculations happen on a monthly basis.
emphasis added
https://www.investopedia.com/terms/s/si ... rtgage.asp
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Re: Paying debt weekly rather than monthly

Post by rocket354 »

willthrill81 wrote: Sun Jun 30, 2019 9:03 pm
rocket354 wrote: Sun Jun 30, 2019 8:07 pm
willthrill81 wrote: Sun Jun 30, 2019 6:27 pm
rocket354 wrote: Sun Jun 30, 2019 9:48 am Mortgages still accrue interest daily. It just gets reported monthly.
False. Mortgages are a rather unique debt instrument today in that regard. Paying principal on day 2 of a month vs. day 29 will not change the amount of interest you pay for that month.
Er, have you ever bought or sold a home with a mortgage on it? You pay interest up to (or from) the exact day of the transaction. If you pay off a mortgage, they have to give you a payoff amount that is different from the last reported balance...because interest has accrued.

If you are talking about grace periods for a payment, that just means they are willing to accept a payment within a certain time and still treat it as if it were paid on the first. That does not mean interest isn't accruing or you won't have to pay it in other circumstances.

Different institutions that service loans may make paying bi-monthly easier than others. Some "allow" it in the sense that you can structure your payments to essentially make a half-payment earlier to avoid some interest, with the remainder on the first. Some don't make it so easy.
Most mortgages do not accrue interest daily. Those that do are called simple-interest mortgages, but they are not common in the U.S.
The standard mortgage in the US accrues interest monthly, meaning that the amount due the lender is calculated a month at a time.
https://www.mtgprofessor.com/a%20-%20in ... entals.htm
A simple-interest mortgage is a home loan with the calculation of interest is on a daily basis. This mortgage is different from a traditional mortgage where interest calculations happen on a monthly basis.
emphasis added
https://www.investopedia.com/terms/s/si ... rtgage.asp
Interest is calculated monthly for payments: if you pay 3 days late within your grace period, your payment is attributed as if it were paid on the first. If you make your April payment on March 15, it is likely to show up with the same interest as if it were paid on April 1--they attribute the payment to that date. However, to say it doesn't accrue on a daily basis, even on traditional mortgages, is flat wrong, or else every single mortgage taken out or closed where you pay your per diem interest (which is about every single one) is wrong. I feel like we're both approaching it from different angles, but how payments are structured is different from how things are working behind the scenes.

Believe me, I would have loved not to have paid an extra almost $1400 in interest to my old lender on my refi I just closed mid-month on top of the stated balance.
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Re: Paying debt weekly rather than monthly

Post by GuyInFL »

buhlaxtus wrote: Sun Jun 30, 2019 9:29 am I have always paid by automatic debit, and when setting it up there has always been a very clear way to specify extra payment to principal. You might find some bank who defaults to saving overpayments to apply to the next month's bill, which is a bad deal for you, but if they do that you can straighten things out one way or another.
I had a bank apply additional $ toward future payments. I was pretty upset and called them and they corrected it retroactively.
Most banks reported payments aas principal, interest, additional principal, escrow, balance.
This one did not. They obviously sought to obscure the process. I was glad to get rid of that 'servicer'
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Re: Paying debt weekly rather than monthly

Post by ResearchMed »

rocket354 wrote: Sun Jun 30, 2019 10:36 pm
willthrill81 wrote: Sun Jun 30, 2019 9:03 pm
rocket354 wrote: Sun Jun 30, 2019 8:07 pm
willthrill81 wrote: Sun Jun 30, 2019 6:27 pm
rocket354 wrote: Sun Jun 30, 2019 9:48 am Mortgages still accrue interest daily. It just gets reported monthly.
False. Mortgages are a rather unique debt instrument today in that regard. Paying principal on day 2 of a month vs. day 29 will not change the amount of interest you pay for that month.
Er, have you ever bought or sold a home with a mortgage on it? You pay interest up to (or from) the exact day of the transaction. If you pay off a mortgage, they have to give you a payoff amount that is different from the last reported balance...because interest has accrued.

If you are talking about grace periods for a payment, that just means they are willing to accept a payment within a certain time and still treat it as if it were paid on the first. That does not mean interest isn't accruing or you won't have to pay it in other circumstances.

Different institutions that service loans may make paying bi-monthly easier than others. Some "allow" it in the sense that you can structure your payments to essentially make a half-payment earlier to avoid some interest, with the remainder on the first. Some don't make it so easy.
Most mortgages do not accrue interest daily. Those that do are called simple-interest mortgages, but they are not common in the U.S.
The standard mortgage in the US accrues interest monthly, meaning that the amount due the lender is calculated a month at a time.
https://www.mtgprofessor.com/a%20-%20in ... entals.htm
A simple-interest mortgage is a home loan with the calculation of interest is on a daily basis. This mortgage is different from a traditional mortgage where interest calculations happen on a monthly basis.
emphasis added
https://www.investopedia.com/terms/s/si ... rtgage.asp
Interest is calculated monthly for payments: if you pay 3 days late within your grace period, your payment is attributed as if it were paid on the first. If you make your April payment on March 15, it is likely to show up with the same interest as if it were paid on April 1--they attribute the payment to that date. However, to say it doesn't accrue on a daily basis, even on traditional mortgages, is flat wrong, or else every single mortgage taken out or closed where you pay your per diem interest (which is about every single one) is wrong. I feel like we're both approaching it from different angles, but how payments are structured is different from how things are working behind the scenes.

Believe me, I would have loved not to have paid an extra almost $1400 in interest to my old lender on my refi I just closed mid-month on top of the stated balance.
That is because you SOLD the property thus ending the mortgage.

Have you ever seen a mortgage balance that changed because you paid on the 2nd of the month instead of the 27th (or such)?
Nope, not for most conventional mortgages in the USA (also as mentioned above).

RM
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Re: Paying debt weekly rather than monthly

Post by Spirit Rider »

rocket354 wrote: Sun Jun 30, 2019 8:07 pm Er, have you ever bought or sold a home with a mortgage on it? You pay interest up to (or from) the exact day of the transaction. If you pay off a mortgage, they have to give you a payoff amount that is different from the last reported balance...because interest has accrued.
You have a fundamental misunderstanding about how almost all mortgages work. You are mistaking the partial interest charges that occur the month of acquisition and the month of payoff for what happens every other month. In those other months, interest is assessed monthly.
If you are talking about grace periods for a payment, that just means they are willing to accept a payment within a certain time and still treat it as if it were paid on the first. That does not mean interest isn't accruing or you won't have to pay it in other circumstances.
Additional payments on any other day of the month do not get applied against the principal on that date.
Different institutions that service loans may make paying bi-monthly easier than others. Some "allow" it in the sense that you can structure your payments to essentially make a half-payment earlier to avoid some interest, with the remainder on the first. Some don't make it so easy.
While it is possible for a mortgage to actually be written with semi-weekly payments, it is exceptionally rare. Every weekly or bi-weekly payment system I have ever seen just accumulates the payments in an account and makes a monthly payment of what is in the account on the payment due date, all for a fee from a third party servicer. If you wish to make additional payments equivalent to 26 bi-weekly payments where each payment is 1/2 of a normal months payment. The third party servicers will normally pay a nominal interest and actually only apply a 1/2 month payment every six months. It is more efficient to simply pay an additional 1/12 of a normal month's payment as additional principal and you will pay it off faster, because you are actually applying the increased payment to principal monthly.
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Re: Paying debt weekly rather than monthly

Post by Earl Lemongrab »

The bi-weekly payment ("one weird trick") scheme was just a way to obscure what was going on and to fool some people into thinking that they pay the same amount but save money. And we'll charge them for the privilege!

So if you want to pay early on your mortgage, and I'm usually in the "don't do that" camp, then definitely never use a paid service for it. Just follow the normal monthly schedule and make extra payments against principal at whatever amounts and intervals you like.
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