Bi-Weekly Payments…The Real Deal
Many mortgage companies offer bi-weekly payment plans which are designed to help you budget for your mortgage payment more conveniently and payoff your mortgage early. Any bi-weekly payment plan will help you pay your mortgage off sooner, however, very few bi-weekly payment plans are actually making bi-weekly payments.
What the lender actually does is collect a bi-weekly draft from you but the payment is still applied in a lump sum once a month to your mortgage. This does pay down your principal quicker because it essentially results in one extra payment being made directly to your principal balance each year. You are not, however, getting the benefit of having a payment applied to your mortgage on a bi-weekly basis, even though you have had it deducted from your bank account that way.
This sounds confusing and, in fact, it is. If you are not very savvy about payment schedules, you could read all the information provided by most lenders offering these programs and not realize many of these important facts. Most lenders who offer these programs charge an enrollment fee of $250 or more. In addition, they also charge a processing fee of sometimes as much as $9.50 to $11.50 per draft of your checking/savings account. This can add up to over $500 per year in fees alone. I don’t know about you but, given the choice, I’d rather write checks myself and use that extra $500 to pay down my principal balance.
Don’t get me wrong, these programs will enable you to pay off your mortgage more quickly, but for far less than $500 a year, you can create the same effect and pay the extra money you’re not spending on fees to your mortgage principal.
Unless the your mortgage lender is offering the bi-weekly payment plan for a one time set up fee (which is usually a result of banks charging them a fee to set up automatic draft payment), there is a better option which you can set up yourself.
Tomorrow’s post will tell how to set up bi-weekly payments yourself.