Biweekly Payments (1 Viewer)

[Samuel Des]

Anyone ever do biweekly mortgage payments? It seems like you're making an extra payment a year. I figured out the break even point for me would be 3.5 years, i.e., the point where I would recoup the $375 fee for changing to a biweekly plan and then start seeing some savings against the interest.

I plan on sticking around for about 6 to 7 yrs. So I'm not sure if it really makes a difference. But I sure like the idea of owing less.

Actually, now that I think of it, it would only make sense if I stuck around for the long haul, ~greater than 10 years. But anyway, I wondered if anyone here is doing it.

 

[KyleS]

Why are you going to move to biweekly payments and pay them a fee to do so? Just make a smaller extra payment each month that will go straight to the principle and accomplish the same thing. So if your mortgage payment is 1000 per month make an extra $84 dollar per month payment which will equal out to 1 extra payment per year. Just an extra payment a year (broken Down monthly to shave compounding interest) can save you years and years on your mortgage, especially if you are on a 30 year plan.

KyleS

 

[Samuel Des]

Ah, but this way, I don't have to put in extra money. After the $375 fee, I make the same payment amount per month as before, only now, it's broken out twice a month. That's why it seemed like a good idea. I'm still thinking it over, but you definitely made a good point.

 

[Kevin P]

Biweekly is not the same as twice a month. Twice a year there would be three payments per month, which is where you save on interest in the long term.

Biweekly mortgage payments is a good idea if you're paid weekly or biweekly. If you're paid semimonthly (twice a month) or monthly, then you'll have to dig for that extra payment twice a year.

But, you can accomplish the same thing by including a little extra principal in each of your monthly payments.

KJP

 

[ken thompson]

I'll bet if you offer to do auto-debit they'll waive the fee. Banks love auto-debit and it'll save them money. That is if you dont mind auto-debit.

 

[Samuel Des]

D'Oh! I meant bi-monthly. I'm a bit pre-occupied at the moment.
Kevin P -- That is an excellent point. I would be paying $375 in order to make an extra payment per year! What a SCAM! This is a bad idea! Thanks a BUNCH! The letter I had was purposefully skectchy. Now I have a better idea.
Also, I really hate my mortgage company for putting me on so many solictation lists. Since moving in, I average nearly 4 phone calls a week. Plus the mail.....

 

[Denward]

There is absolutely no reason to pay the bank a fee for the privilege of paying off your loan more quickly!

If your mortgage payment is $1000 per month, paying them $500 every half month will bring your mortgage down a little faster because the payment is applied to your account as soon as they receive it. This reduces your principle which reduces the daily interest that accrues on it.

Just send them extra payments with your account number written on your check. I pay my mortgage using my bank's (different bank than my mortgage holder) online bill paying system so I never send in the mortgage payment coupon. They should be able to correctly process your payment as long as they know your account number.

If you pay them the fee and they put you on the semi-monthly schedule, then you have twice as many chances to be late with your payment. If you have the discipline to do it yourself, save the fee and just make the more frequent payments.

 

[DaveHo]

Someone correct me if I am wrong. These bimonthly payment plans which force you to essentially make an extra payemnt per year are pretty much a scam. And here is why.

1) They charge you, in your case $375, to "start the program".

2) That payment you make "in the middle of the month" gets lumped in at the beginning of the next month along with the rest of that months payment. They basically get to use your money interest free for a few weeks till it gets credited.

They only thing these do is dicipline you into making extra principle payments. If you have any financial sense, you can do this yourself. In order for this to work like you think it should, the terms of your mortgage work need to be changed. Read the fine print.

-Dave

 

[Samuel Des]

Absolutely -- If you're being approached by this, don't do it! The reason why you "save" money is because you are making one extra payment per year.

e.g.,

Instead of 12 $500 payments per year = $6,000

You pay 26 $250 payments per year = $6,500

Or one extra payment. This is the only reason why you are saving money. You will have paid a fee ($375) to make a prepayment -- that you could have done for no fee anyway!!!

VERY sneaky!!

 

[Denward]

I do not believe this is correct. I believe that payments must be promptly credited to your account which reduces your principle. I have not worked in a mortgage company, but in the insurance company where I work, deposits are credited to your account at the end of the day we receive them. If we didn't do that, there would be heck to pay.

 

[Todd Hochard]

Bi-monthly (not to be confused with bi-weekly) won't have a significant effect on paying off your mortgage early. The interest saved doesn't add up to much. Maybe a few months on a 30 year.
Now, bi-weekly, that's different. As Sam pointed out, you make 26 half payments. This is why you pay it off early.
Charging for this is one of the biggest scams going. you can have the same effect by sending in 1/12 extra of your payment each month.

Depending on what your rate is, paying down your mortgage is actually a bad idea. Sure, the note seems massive, but it's likely the cheapest money you'll borrow (considering the tax savings). Every time I get the urge to prepay my mortgage, I send the money to my investment account instead. Obviously, in the last two years, this strategy has backfired, but over the long term, you'll end up better off. And, it gives you more options in the meantime.

Remember, if you get laid off, you still owe the mortgage, and no one is going to give you a home equity loan when you're unemployed. Money in the bank is very nice at times like this.

Todd

 

[DaveHo]

Still not sure which of us is correct, but here is my thinking. I think we both agree that these payment plans do not change the actual terms of the mortgage. Right? I mean there are mortgages where the scheduled payments are twice a month, but that is not the case here. So, as part of the mortgage, a payment of X dollars is due the 1st of the month. Now if you pay extra principle as part of a conventional once a month mortgage, can you skip a payment and take from the previously paid extra principle? No, you can't. They want their X dollars the 1st of the month. The same principle applies to these every two week payment plans. You must make a payment of X dollars the 1st of the month, since the terms of the mortgage have not been changed. In order to make sure there are X dollars to be paid, the mortgage company, holds or escrows all or part of your previous payment(s) to ensure that. Remember, the mortage company just services the mortgage. They are usually not the actual lender.

-Dave

 

[Samuel Des]

Todd, excellent advice! It's just that I guess every now and then I get an anxiety attack when I look at my finances. Then, when I get one of these offers, I think, maybe this is a way to save money. I'm glad I sat down and thought about this.
Wow. I still can't get over how this thing was marketed to me. I would re-type the letter, but I ripped it up once I learned the scam.

 

[Ryan Wright]

Tell GMAC to shove their $375 fee up their... you know what.

Quick rundown:

If you pay monthly, you make 12 full payments a year.
If you pay bi-weekly, you make 26 half payments, or 13 full payments.

Essentially, all you're doing is making one extra payment per year. And you're paying a $375 fee for the privilege. Incidentally, most mortgage companies will let you do the bi-weekly plan FOR FREE. GMAC seems to think they can get away with ripping people off.

If you want to get on this plan, just add 10% to your mortgage payment every month. So if your payment is $1000, pay $1100. That should reduce your mortgage by a good 8 years and you can buy a nice new set of surround speakers for your $375.

 

[Ryan Wright]

By the way, the bi-weekly deal is a good program to get on and really does work, but it's obviously not worth a $375 startup fee. A $10 fee seems much more reasonable.

 

[CameronJ]

Bi-monthly (not to be confused with bi-weekly) won't have a significant effect on paying off your mortgage early. The interest saved doesn't add up to much. Maybe a few months on a 30 year.

Todd, actually it saves exactly one month.

If you do want to prepay your mortgage, a good strategy is to add the amount of principal paid every month. This essentially makes two payments, as you are paying this month's and next month's principal. Obviously you have to slowly increase the extra payment.

 

[Denward]

Okay. Let's get straight on a few terms here.
I think we can all agree on the following:
Annual = once per year
Semi-Annual = once every half year
Therefore,
Bi-Annual = once every two years
Bi-Weekly = once every two weeks
Bi-Monthly = once every two months
Semi-Monthly = once every half month
etc., etc., etc.
I'm not singling out anyone's post in particular but it's hard to understand some posts when I'm not sure how the poster is using these terms.
Continue amongst yourselves.

 

[Todd Hochard]

Bi-Monthly = once every two months
Semi-Monthly = once every half month

You are correct, of course. I knew what I meant, but English is my second language. Being from WV, Hillbilly is my first.