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Should you enroll in a bi-weekly mortgage payment program? The Truth!

By
Mortgage and Lending with Blue Ridge Bank Mortgage NMLS # 78989

A popular question we receive is “Can I enroll in bi-weekly mortgage payments after closing on our mortgage?” and this is a loaded question where often the answer is “No” because of the unnecessary transaction costs and/or the stress it puts on a budget.  So let us explain the ins and outs of bi-weekly mortgage payments to save mortgage interest by paying off the mortgage in a shorter term.

How does a Bi-Weekly Mortgage or Equity Accelerator Program work?  Usually it works like this with third party companies:

  • There is an up-front charge of $295 – $400, maybe even more
  • There is usually a fee for every drafted payment
  • Half of the total mortgage payment is drafted out of the borrower’s bank account every 2 weeks, not twice per month.
  • There are 26 drafts per month when bi-weekly versus 24 drafts if twice per month which equals one extra total payment per year (2 half payments extra = 1 full payment)
  • Borrower is shown that for small fees and just drafting out the payment, there will be tens of thousands of dollars in savings over the term of the loan
  • The Bi-Weekly Payment Company will collect the half payments every 2 weeks and then disburse the full payment to the borrower’s mortgage company once per month
  • Once per year, the Bi-Weekly Payment Company will send one extra full payment to the borrower’s mortgage company as an extra principal payment which creates the early payoff and interest savings

Is this true that this system will pay off a mortgage early and save a lot of interest?  Yes it is true, BUT…(Read below)

How bi-weekly mortgage payments workConsider These Tips Before Enrolling in a Bi-Weekly Mortgage Payment Program:

  1. By taking out 2 half payments every 2 weeks instead of twice per month, there will be 2 months when there will be 3 half payments collected
  2. So there are 2 extra half payments per year collected or 1 extra full payment collected per year
  3. It costs several hundred dollars up-front plus often a fee every time a payment is collected and/or paid
  4. Consider your budget as there will be 2 months where half of your mortgage payment will be an additional debt payment you are not used to making.
  5. Most importantly, You can do the same thing for FREE by paying one extra principal payment per year directly to your mortgage company

Now, if your mortgage company offers this service with no fees at all and you are ok with the extra half payments coming out 2 months out of the year, then it is a program worth considering.  Or if you really want to pay off your mortgage early to save a lot of interest, yet feel you would not have the discipline to do it and the fees are worth it to you, then may consider the program.  Just keep in mind to review the fees!  Just recently 2 companies were charged $38 million in total charges for allegedly steering consumers into a mortgage payment program that cost them millions of dollars in fees at $295 up-front and $2.50 per deduction.    Even worse, sometimes bi-weekly mortgage payment companies don’t make the mortgage payments on-time or pay the extra payments as they are supposed to.

Click Here to Learn Great Ways to Pay Off Your Mortgage Early & Save a LOT of Money

Hopefully you find this helpful for you or your clients.

Posted by

Russell Smith - Your Mortgage Lending Expert

NMLS # 78989

Comments (31)

Sam Shueh
(408) 425-1601 - San Jose, CA
mba, cdpe, reopro, pe

Good too know. Every two weeks may cause a strain like end of year with no reserve.

Best is pay a bit more if you have the extra cash.

Aug 03, 2015 05:42 AM
John Ferrier
Mortgage Network Solutions, LLC - West Chester, PA
20+ yrs as a consultative mortgage professional

Like you, I've always been wary of 3rd parties that 'shorten the term'. For clients that want a term shorter than the norm, i.e a 24 yr term, or a 13 yr term, I simply run an amort schedule and show them how much extra to include in each payment.

This works well when doing a refi because their focus is now on the loan and term, instead of on the move, or 2 if they're a move up buyer.

Aug 03, 2015 06:15 AM
Francine Viola
Coldwell Banker Evergreen Olympic Realty, Olympia WA - Olympia, WA
REALTOR®, In Tune with your Real Estate Needs

Wasn't aware of the fees.  Thanks for the great post!

Aug 03, 2015 06:33 AM
Debbie Gartner
The Flooring Girl - White Plains, NY
The Flooring Girl & Blog Stylist -Dynamo Marketers

some good warnings here.  Yes, nothing is for free.  I'd rather take the responsibility and do myself at end of year.

Aug 03, 2015 06:36 AM
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

You're absolutely right, Russell Smith ... there are multiple ways to accomplish much the same outcome without actually committing to a bi-monthly payment. 

Gene

Aug 03, 2015 06:47 AM
Mel Ahrens, MBA, Kelly Right Real Estate
Kelly Right Real Estate - Hood River, OR
Customized Choices for your Real Estate Needs

Hello Russell,

Key point: "You can do the same thing for FREE ". No need to pay someone else to do what you can do yourself.
Mel

 

Aug 03, 2015 07:47 AM
Rick Rowe
Keller Williams - Strasburg, PA
Marketing in the beautiful Amish country

Great article! Thanks!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Aug 03, 2015 07:59 AM
Kim Boekholder Utah Real Estate/ PECO
Results Real Estate 801.580.5624 - Draper, UT
Broker Results Real Estate/Leasing Specialist PECO

We were lucky to have a bank that already had this program as an option for free except our payments are pulled weekly.  Some months its a little challenging but in the end its been worth it.  Great article pointing out issues people should know about.  

Aug 03, 2015 11:46 AM
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

This questions comes up from time to time.  Thanks for the post.

Aug 03, 2015 12:27 PM
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Russell Smith you are right - this service is good only if there are no hidden charges.

Aug 07, 2015 03:13 PM
Russell Smith
Blue Ridge Bank Mortgage - Wilmington, NC
Loan Officer Communication & Execution You Deserve

 Exactly and basically if it is a third party, there will be a fee.  The only time it would be possibly free is if your current mortgage company offers it.  Once you purchase a home, companies purchase leads from abstractors who check public records for new mortgages filed.  So then you will be flooded with mail from third party companies offering this product

Aug 07, 2015 09:24 PM