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New Member
hooperdoski
Posts: 6
Registered: ‎02-06-2013

Accelerators - Biweekly Mortgage Payments

We recently did a refi on our home.  About two months after the loan was completed we received what I felt was misleading letter, from a Company called National Biweekly Administration, that had to do with them suggesting and managing biweekly mortgage payments.  This biweekly mortgage payment plan would supposedly reduce the loan term, interest paid and principle paid by substantial amounts without increasing the monthly payment amount.

 

Once I studied the letter and went to their website I understood the concept they were pushing, which was a good idea, but I saw no need to have them manage the payments when with automatic electronic payments it's merely a matter of setting up the biweekly electronic mortgage payments with our bank.  However, I contacted the mortgage company servicing are loan (loan sold to Freddie Mac) and asked about making the electronic biweekly payments.  Their response was, "At this time we do not have a bi-weekly payment program for your type of loan."  They also went on to say, "You may accomplish the same thing by taking your monthly payment, dividing it by 12, and making a principal only payment for that amount each month."

 

I'm not sure I completely understand what the representative from the mortgage servicing company is saying, but it seems he/she is saying that by adding an additional 1/12th of the monthly payment to our mortgage payment it would result in the same savings as the biweekly payments, but if that is the case I don't believe it because he/ she seems to be saying increase your monthly payment by 1/12th, which I don't want, and some quick head math is saying the savings (loan term, interest & principal amounts) wouldn't be as much as the biweekly mortgage payments.

 

So my questions are:

 

1)  In your interpretation of what the representative said, wouldn't that increase the amount of my monthly payments and would it really save as much as the biweekly payments assuming the biweekly payments were processed at the time of receipt?

2) If the servicing mortgage company doesn't have a biweekly payment program for my type of loan it seems like there would be a workaround because the company that introduced me to the biweekly payments concept wouldn't have said they could do it if the mortgage company rep is right.  So, does anyone know what the workaround is?

 

Thanks in advance.

 

 

Valued Contributor
tooleman694
Posts: 2,296
Registered: ‎08-25-2011

Re: Accelerators - Biweekly Mortgage Payments

If you get paid every other week, twice a year you will have a month with 3 paychecks. Use the extra checks to pay it down.

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QAMngrGirl
Posts: 463
Registered: ‎11-28-2012

Re: Accelerators - Biweekly Mortgage Payments


tooleman694 wrote:

If you get paid every other week, twice a year you will have a month with 3 paychecks. Use the extra checks to pay it down.


The bi-weekly auto-payments debit every other week, and the extra full payment made (the "extra" paychecks) is supposed to reduce your loan faster. I understand the concept, just wonder how much you pay in fees to have a company do this for you :smileysad:

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Valued Contributor
HoldingOntoHope
Posts: 1,057
Registered: ‎09-29-2009

Re: Accelerators - Biweekly Mortgage Payments

If you do the bi-weekly payments you will still be making 13 payments in a years time. Your perceived payment is not going up because you are paying 1/2 your regular monthly payment every two weeks. But that means 26 payments or 13 months versus 12 monthly payments. The adding 1/12 of a payment to principal only is the same amount of money each year. As to the difference in total interest payments over the life of the loan between the two methods you will need to find a loan calculator or someone way more skilled in math than me.:smileysad:

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DallasLoanGuy
Posts: 6,094
Registered: ‎07-03-2007

Re: Accelerators - Biweekly Mortgage Payments

make a payment every two weeks = 26 half payments = 13 whole payments(one extra per year)

 

you can accomplish the same thing by dividing your payment by 12 and sending in that extra each month.... you must note that it goes to principle reduction, otherwise they might just put it in escrow and try to refund it to you after their yearly escrow audit.

 

one extra payment per year over 23 years will pay off your mortgage..... =>  you knock 7 years off the loan.

 

I have seen people make the one extra payment with their tax refund or with annual Christmas bonus.... Takes discipline no matter how you do it unless you have it set up to auto draft.

maybe your servicing bank will set it up some time soon?

i would hesitate using a 3rd party to facilitate

 

 

 




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New Member
hooperdoski
Posts: 6
Registered: ‎02-06-2013

Re: Accelerators - Biweekly Mortgage Payments

I should have explained better.  The company that solicited doing the biweekly payments for me meant by "biweekly" that you divide your mortgage payment amount in half and that amount gets paid twice per month (I used the term biweekly because of them).  In other words, as an example, if your monthly mortgage payment is $500 per month you would make a $250 payment on the first and another on the 15th.  If you follow the link that follows it will explain it and it's actually a good idea.  Especially if you are doing auto draft (ACH Debit) already because all you have to do is setup another auto draft so that you're making the two $250 payments per month.

 

Here's the link to a video that explains the concept:  http://www.interestminimizer.com/consumer-video.html

 

Because I used the term, "Biweekly", maybe that's why the mortgage company rep's message didn't make sense.  I should have used the term bimonthly (duh).

 

I'm going to contact the mortgage company again to re-explain what I meant, but I still anticipate they won't be setup for it.  So, if anyone has an idea about a workaround I would like to hear it.

 

Thank you.

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Senior Contributor
StartingOver10
Posts: 3,814
Registered: ‎03-06-2010

Re: Accelerators - Biweekly Mortgage Payments

DallasLoanGuy gave you the perfect work around.

 

Trusting the third party to make the payment timely is risky at best. I would rather make my payment directly to the lender, especially from a papertrail POV. The servicers have a difficult enough time as it is without throwing in another party to the mix. Be careful. You can achieve the very same thing with one extra principal payment a year.

New Member
hooperdoski
Posts: 6
Registered: ‎02-06-2013

Re: Accelerators - Biweekly Mortgage Payments

As an afterthough, I just used a bimonthly calculator (actually they called it a biweekly calculator) to see what the difference is between monthly mortgage payments and bimonthly mortgage payments (two half payments per month).  It was very interesting.  Here's the results:

 

Loan = $177,000

Term = 30 years

Interest = 3.625%

 

Monthly Payments = 807.21 for 30 years with total interest of $113,595.54

Bimonthly Payments = $403.61 for 27 years with total interest of $96,216.27

 

The only catches are; some banks aren't setup for bimonthly payments and some banks only apply any payments made, during the month, on a certain day of the month, but if your loan doesn't have a prepayment penalty, which most loans don't, then it seems that they couldn't do that.

Regular Contributor
bobebob
Posts: 244
Registered: ‎08-14-2011

Re: Accelerators - Biweekly Mortgage Payments

[ Edited ]

hooperdoski wrote:

I should have explained better.  The company that solicited doing the biweekly payments for me meant by "biweekly" that you divide your mortgage payment amount in half and that amount gets paid twice per month (I used the term biweekly because of them).  In other words, as an example, if your monthly mortgage payment is $500 per month you would make a $250 payment on the first and another on the 15th.  If you follow the link that follows it will explain it and it's actually a good idea.  Especially if you are doing auto draft (ACH Debit) already because all you have to do is setup another auto draft so that you're making the two $250 payments per month.

 

Here's the link to a video that explains the concept:  http://www.interestminimizer.com/consumer-video.html

 

Because I used the term, "Biweekly", maybe that's why the mortgage company rep's message didn't make sense.  I should have used the term bimonthly (duh).

 

I'm going to contact the mortgage company again to re-explain what I meant, but I still anticipate they won't be setup for it.  So, if anyone has an idea about a workaround I would like to hear it.

 

Thank you.


 

Here's my take from an earlier post of mine.  It includes some numbers I ran for a 15 year loan and what the additional payments would accomplish.

 

I checked out the link to the video, and what they are marketing is a biweekly mortgage payment.  There would be no acceletated reduction in principal and therefore interest savings to do a bimonthly payment as you were describing.

 

If you look at the bottom after my copied post, I called to find out about the fees.  I did a quick analysis on what it would cost to do the program.

 


 

Paying extra fees for a biweekly mortgage is a waste of money

 

I wouldn't get hung up on biweekly payments, and here's some reasons why:

 

1. Biweekly payment setups are done more to align your mortgage payment with your paycheck.  In your case you stated you get paid twice a month versus every two weeks, so there is no benefit of being able to sychronize your mortgage payment with your paycheck.

 

2. Even if you were getting paid every two weeks (as I do) it is not a big deal to normalize your budget to just figure out how much of your paycheck needs to be deposited into a budget checking account (the remainder going to a personal account) to make sure that whenever the bills must be paid that there is sufficient money in the account.  I get paid every two weeks but my mortgage and most of my other bills are monthly.  It's not a problem if you have a basic budget.  I think most people on this site probably already do a budget already.

 

3. While I agree that setting up a 26 payments per year mortgage and paying it at 1/2 of the payment amount of a monthly will save you $$ over the life of the loan, this is because you are paying ahead on principal.  However, this is just one way of making extra payments against your principal. 

 

Unless you got suckered into some loan with a pre-payment penalty, you can make extra payments whenever you want.

 

I ran the numbers for the 15 year loan I am currently re-financing right now.  $152,000 for a 15year fixed rate at 2.875%:smileyvery-happy::

 

If I set it up for biweekly and paid at 1/2 the monthly amount, my total paid interest for the loan would be $31,676

If I paid the normal monthly amount and added the extra payment divided up by 12 instead of 26, the interest is $31,775

 

Yup, that is a difference of only $100!  And both loans would get paid off in the exact same month (13.5 years into the 15 year loan).

 

The $100 difference is due to the fact that the very first biweekly payment is made a couple of weeks earlier than the first monthly payment.

 

Don't limit yourself to paying an arbitrary amount of extra principal

 

For me, it is much more important to figure out how much extra you can comfortably afford to pay on your mortgage and just pay this along with the normal payment each month.  Maybe one extra payment a year is the right number for you, but I think it's much more likely that you could pay more comfortably.  And maybe one extra payment a year is too much. Pick what works for you.

 

I allocate a total of $1500 towards my mortgage and escrow monthly .  Currently this equates to an extra $280/month towards principal.  My loan will get paid off two years and four months earlier that a "standard"  biweekly arrangement. And my total interest will be about $6,500 less than either "1 extra payment" method.

 

Keep in mind also that the biweekly arrangement is an added hassle for your bank or whomever set up the biweekly.  This means that you will be paying additional fees to someone for this service.  I am willing to bet that 13.5 years worth of fees is going to more than compensate for that initial $100 savings on the biweekly in my example.

 

So take the time to set up a proper budget and there is no reason to pay someone extra fees to set up a biweekly. 

 

Any fees you pay for a biweekly would be better spent applied to the principal on your loan!


 

So I called the company and got the 411 on the fees they will be charging to perform this service for you.

 

My new loan will be $155,000 for a 15 year fixed loan @ 2.875%

 

To set up the biweekly payments, the initial fee would be $309.25

 

For each debit they make every two weeks there is a fee of $3.25  Given the reduced number of payments, the total fees for the debits is $1,153.75

 

The total cost for the program is $1,463.00  Not an inconsequential amount.

 

On top of that, their program isn't a true biweekly program.  They cannot make biweekly payment with loans that are set up to do monthly interest calculations.  So guess what? 

 

They have to divide up the extra amount you are paying and apply it monthly the same way you would have to to do it yourself!

 

So for a comparison, I modeled a schedule that included doing the extra payments myself and put what would have been their fees towards the principal instead and it saved me an additional $400 in interest and paid off the loan another 2 months early.

 

So do it yourself and save some dough!

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New Member
hooperdoski
Posts: 6
Registered: ‎02-06-2013

Re: Accelerators - Biweekly Mortgage Payments

Dallasloanguy, like I said in the beginning, "I saw no need to have them manage the payments when with automatic electronic payments it's merely a matter of setting up the biweekly electronic mortgage payments with our bank."

 

Bobebob, it's funny we posted two different results at almost the same time.

 

Maybe I did something wrong.  Here's the link to the calculator I used:  http://www.bankrate.com/calculators/mortgages/bi-weekly-mortgage-calculator.aspx

 

Let me know what you come up with.


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