[Ed. Oh sure you can do this yourself, paying bi-weekly on your own, but
who's to say that the mortgage company won't just hold your 2 bi-weekly
payments and just apply it when it has both of them, instead of applying
the payment as soon as it receives it?]
--
Paying for biweekly mortgage-payment program makes no sense
By Holden Lewis Bankrate.com
Numerous companies say they will save you lots of money by setting up
biweekly mortgage payments. All you have to do is pay an enrollment fee of
a few hundred dollars, and often a monthly handling fee, and the payment
company will handle the rest.
It doesn't make financial sense.
"Don't pay any money to a third party to help you set up a biweekly
mortgage," says Anthony Hsieh, chief executive of Home Loan Center, a
California-based online lender. "People look for ways to get you to write a
$195 check."
Most biweekly payment companies charge more than that. But you don't have
to pay a hefty enrollment fee to reap the benefit of making half a mortgage
payment every two weeks. To understand why, you need to know what biweekly
payment companies do and, just as important, what they don't do.
In short, what the companies do is help you make an extra mortgage payment
each year. That can save thousands of dollars and shave years off a 30-year
loan. What they don't do is apply payments immediately to your loan
balance.
When you enroll in a biweekly payment program (one of the most popular is
called Equity Accelerator), you authorize the company to debit your bank
account electronically every two weeks. The money goes into an account
controlled by the payment company. When the company has debited your
account twice, it has enough to make a full payment, which it sends to your
mortgage servicer.
The magic of biweekly payments is based on the fact that there are 52 weeks
in a year. When your bank account is debited every two weeks, you make 26
half-payments a year -- equivalent to 13 monthly payments.
An extra payment a year makes a big difference. For example, someone who
borrows $100,000 at 6 percent interest for 30 years would pay a shade under
$600 a month principal and interest. Let's say taxes and insurance bring
the monthly payment to $1,000. By making an extra $1,000 payment every
year, a borrower would pay off the mortgage in 22 years, 2 months, knocking
almost eight years off the loan and saving about $34,000 interest.
Save cash by doing it yourself
There are several ways to make an extra payment each year. You could save
up your money and make an extra payment each December (or whichever month
you choose), telling the mortgage servicer that the extra money should go
toward principal. Or you could divide your monthly payment by 12 and send
that amount, plus your regular payment, every month, making sure the extra
goes toward principal.
Or you could pay a company to debit your checking account every two weeks
and automatically make the extra payment for you every 12 months. With most
services, you would pay a one-time setup fee of about $200 to $500, plus a
service fee of $2.50 to $4.50 for each biweekly payment. Over 22 years, you
would end up paying at least $1,600 in fees.
With those fees, why not do it yourself?
"Of course you can do it yourself," says John Kane, president of Mortgage
Reduction System Equity Corp., which offers a biweekly payment product
called Mortgage Payoff Acceleration Program. "You can do a lot of things
yourself. You can sell your own house. You can change your own oil. You can
do things yourself that others can do in a more professional, efficient
manner."
Not all homeowners have the self-discipline to send in extra payments, "so
we provide an automated way to let them do it," Kane says. "The ones who
use it are very happy with it."
Payment companies often split the fees with lenders or mortgage brokers.
One payment company offers brokers a 20 percent commission on its $288
enrollment fee -- almost $60.
Some brokers shun biweekly payment companies. "Why would I sell something
that people don't need?" says Ellen Bitton, president of Park Avenue
Mortgage in New York City. She recommends that borrowers just make their
monthly payment, plus 10 percent extra toward principal.
Some lenders will let you write one check that includes the regular
mortgage payment, plus extra to go toward principal. Other lenders prefer
that you write two checks: one for the regular payment and one for the
extra. Ask your lender which method to follow.
Posted: Feb. 6, 2003
--
Hilary Duff is America's Sweetheart & an international HeartBreaker.
"FAILING = Finding An Important Lesson, Inviting Needed Growth" -- Gary
Busey
Ablang wrote:
> [Ed. Oh sure you can do this yourself, paying bi-weekly on your own, but
> who's to say that the mortgage company won't just hold your 2 bi-weekly
> payments and just apply it when it has both of them, instead of applying
> the payment as soon as it receives it?]
Just set up an auto payment through your bank's internet bill pay
system. At BoA it is easy and can take as little as 2 days to transfer -
and it's free to do. My morgage company tried to convince me to pay them
hundreds of dollars so that I could pay them more money more frequently
for the mortgage. What a joke when I can do it myself regularly or at
any time I feel for nothing.
regards,
Ben
isgs294@yahoo.com (Gary) wrote:
> You need to check with your mortgage agreement. MOST will not accept
> partial payments and will simply hold your partial payment and not
> apply it until the second half comes. You gain nothing by pre-paying
> these companies.
An equivalent -- and cheaper because it saves on postage and checks --
method is to simply pay extra to your monthly payment. My mortgager,
Wash. Mut. even lets you itemize extras explicitly divide the extra
money as extra principal, estra excrow and future payments right on the
return stub.
.max
--
was played by maxwell monningh 8-p
> You need to check with your mortgage agreement. MOST will not accept
> partial payments and will simply hold your partial payment and not
> apply it until the second half comes. You gain nothing by pre-paying
> these companies.
In New Jersey, you can prepay the principal on a mortgage for your primary
residence at any time, in any amount, for any reason. It's the law.
So when I moved into my house I sat down at the computer and figured it
out - if I paid an extra $100 each and every month I'd knock almost nine
years off my 30 year mortgage and have it paid off just about when I'm ready
to retire. "They" don't just hang on to the extra money until enough has
accumulated to equal a payment - at that rate it would take about a year and
a half for me.
About eight years left to go.
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> who's to say that the mortgage company won't just hold your 2 bi-weekly
> payments and just apply it when it has both of them, instead of applying
> the payment as soon as it receives it?]