Bi Weekly Mortgage

You are a new homeowner and you are working your way through your mortgage. It’s tough business and it seems like it will take forever to get the thing paid off.

Then, you open you email one day and you see that someone is offering you (in the form of Spam) the possibility of taking years off of your mortgage. Up to 8 years on a thirty-year mortgage. They call this a bi weekly mortgage.

Often they are accompanied with slogans like:

Sounds too good to be true right…well kind of.

The bi weekly mortgage is not a scam at all; instead it is just a form of forced financial prudence. There is no magic involved, although those who are advertising it may try and make it seem that way. It works on the principle that there are more than four weeks in a month.

Let’s say you are like most homeowners and you are making 12 mortgage payments per year. This is one at the end of every month for the interest accrued over that month.

Now, if you were to may bi-weekly that means that you would be making a payment every fourteen days. So each month you are paying every 28 days. For most months this leaves an extra two or three days left over.

So basically you make one extra monthly payment each year to compensate for those extra days.

It may not seem like a big deal making only one extra payment, but over time it adds up to huge savings. For instance, on a thirty-year mortgage, at a reasonable interest rate, you would have the mortgage paid off in 22 years and two months, if you made one extra payment a year. That really is amazing. It could save you over $38,000 on the total cost of your home.

I’m sure right now you are asking yourself. Well why can’t I just make that extra payment myself? The answer is; you can.

Of course you can’t actually pay bi weekly. If you sent your lender a check every two weeks they would send you a letter asking you to stop, and just make a payment like any other person.

The bi weekly mortgage is mostly just psychology. That they will do is automatically take half of your mortgage payment out of your bank account every two weeks. You have no control over this and it means that you don’t have to feel the pain of forking over that large sum of money yourself.

Like anything financial money makes more money. By signing you up for this service they can then take the money you give them and invest it. They also invest all of the money that all of their other customers have. By investing wisely they can make money on this money. It works much like a bank.

ON the flip side, they also make money from service fees and transaction fees that you ultimately end up paying. For instance, when you do sign up for the service they will undoubtedly ask you for a $200 sign up fee. For them that is pure profit.

They will also charge you anywhere from $3 to $10 per transaction on a bi weekly basis. In all fairness they probably aren’t charging you much more than their base cost of setting up your account and doing the work of making your payments each week.

Over the course of a 30-year mortgage you will probably end up paying about $1,600 for the service. So you really have to ask yourself if you need to pay someone that amount of money to make you a little more fiscally responsible.

Generally the lenders like the idea of bi weekly mortgages. Firstly, they know that a company that has such a huge amount of money is going to be able to make the monthly payments on time.

They also like that the responsibility for collecting that money falls to the bi weekly mortgage company. It is now their job to get the money from you.

On top of all of this the lenders also get a portion of the fees that you pay. This is natural compensation for the interest they would lose on the shortened mortgages.

Like any time you trust your money to someone else you are taking some risks. There could be an accounting error or even fraud. This should be a concern to you seeing as everyone is out to make a buck, and it is profitable to sucker people for a couple months, get their deposits, get their fees then skip town.

If you do undertake a bi weekly mortgage make sure to call you lender right after they you make your second bi weekly payment to ensure that the money got where it was intended to go.

If you are looking to do this yourself and save yourself the uncertainty of dealing with a third party, all you have to do is:

Of course if it were that simple everybody would do it. In most cases you have arranged your mortgage to suit your income and your lifestyle. A deviation from this may result in unexpected financial hardship. After all, $75 a month means one less week worth of groceries. Could you live without that?

To discuss this topic Click Here to go to our Online Forum