Can a Bi-Weekly Mortgage Really Help?

Can a Bi-Weekly Mortgage Really Help?

A lot of advertisements promoting bi-weekly mortgage companies are flooding the internet. Ironically, these ads do not come from a mortgage lender. These ads typically promise no refinancing, no points, no closing costs, no credit check and no appraisal. They also swear that they can help you save thousands and pay off your mortgage in less the time it was intended to. Consumers are guaranteed to enjoy these benefits if they allow half of their mortgage payment to be deducted from their checking account every two weeks. The question is: Is this set-up really beneficial?

In a bi-weekly mortgage, borrowers are allowed to split their monthly mortgage due into two and pay them every other week. With 52 weeks comprising a year, borrowers wind up making 26 payments, which means, consumers pay 13 monthly installments as opposed to the customary 12. The additional payments help to decrease the total amount of interest payments on the loan and at the same time, make the process of acquiring equity faster. With the additional installments each year, borrowers can cut their 30-year mortgage down to an estimated 23 years and the 15-year mortgage to around 12 years.

With bi-weekly mortgages, borrowers don’t just hand in their half payments to their mortgage lender because it does not entertain partial payments due to legal and accounting reasons. This is where the bi-weekly mortgage company comes in. It acts as the link between you and your mortgage lender. The intermediary works by automatically deducting the half payment from the borrowers’ checking account every two weeks. The company then puts the funds into a trust account. When the mortgage payments are due, the funds are then forwarded to the mortgage lender.

To set up a bi-weekly mortgage, borrowers need to spend around $195 to over $350, depending on the amount of sales commission paid to the individual or company setting up the account for you. Aside from this, a maintenance fee is required, in addition to transaction fees every time money is deducted from the bank account of the borrower.

Using a bi-weekly mortgage plan offered by intermediaries is not really practical. The companies that collect your half payments for you merely holds them and then charges you for it - something that frankly, you can do yourself, without paying holding fees.

In the long run, borrowers can benefit more by dividing their monthly payments by twelve and adding the amount to the monthly mortgage due. With this method, borrowers can save more because of the principal reduction they make every month and pay off their mortgage loan earlier. Plus, if you do it yourself you do not have to contend with unnecessary fees. The speed with which the loan can be paid off is dependent on the interest rate and the time when the bi-weekly payments were started.

Borrowers who look to bi-weekly mortgages for the principal reduction and the savings offered are on the right track. But by doing this same process on your own instead of paying someone else, the benefits are further increased.