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)
Consider These Tips Before Enrolling in a Bi-Weekly Mortgage Payment Program:
- 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
- So there are 2 extra half payments per year collected or 1 extra full payment collected per year
- It costs several hundred dollars up-front plus often a fee every time a payment is collected and/or paid
- 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.
- 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.
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