Complaint Review: All Banks Mortgage Companies And Bi-Weekly Payment Companies

There are two points to make about your house payment:

1. When you make your next house payment, you will be paying for interest that accrued daily from the last time you made a payment, which is usually 30 days. If you could make a house payment every two weeks, then that house payment at the first of the month would not have accrued interest for the whole month, but for only two weeks.

2. The amount of interest that accrues is based on the balance of the loan, so if you paid something on the balance halfway through the month, then that first of the month payment would be calculated on a smaller loan balance (for two weeks) and thus you would pay less interest.

If you could truly make house payments every two weeks to the bank, you could pay off your loan much sooner and save many thousands of dollars.

However, the reality is that if you attempt to make a payment to the bank every two weeks, they will not allow it because it messes up their program, and it costs them twice as much to process your account activity.

This is where the Bi-Weekly Payment Plan companies come in. They tell you to pay them half a house payment every two weeks. They will then make your house payments for you and you will save lots of money and pay off the loan early.

Of course, they do this for a fee. There is an upfront fee of $250 or more, plus a monthly "maintenance" fee. A recent offer I received required $275 fee and $6.00 montly fee. So in the first year I would pay $447 in fees.

Like I said, the bank does not want to process a house payment every two weeks because it would increase their labor costs and reduce their income from interest payments. So how do these Bi-Weekly Payment Plan companies do it? Easy - they DON'T!

Here is what they do: You send them half a house payment (or more if you wish) every two weeks. They make your monthly house payment for you. But every so often, there are more than four weeks in a month, right? They take the extra house payment money and stick it in the bank. They are NOT making advanced principle payments (payments on the balance of the loan). Instead, at the END OF THE YEAR, they take all the extra money out of the bank and make an EXTRA HOUSE PAYMENT.

The problem with this is that they keep your money all year long. Your home mortgage interest accrues at the normal rate all that year. It is only at the end of the year they do anything to save you money.

Why is this a ripoff? Well, it isn't actually a ripoff. But it is deceptive because they do not clearly tell you the details of how this works, and the reason they don't is because you could just as easily do it yourself, save the setup and maintenance fees, and pay off the loan faster and save more interest than the Bi-Weekly programs do while still using the same amount of money. Here's how:

Calculate how much you would pay one of these Bi-Weekly companies each year. Let's say your monthly loan payment is $1,000. Take half of your monthly payment ($500), multiply it by 26 (26 x $500 = $13,000), and add the Bi-Weekly setup fee and monthly payment, such as the $447 I mentioned above for a total of $13,447. That is how much you would pay out for the first year under the Bi-Weekly program.

Now divide that amount by 12 to get a monthly payment ($13,447 / 12 = $1,120.58 which is $120.58 more than your original $1,000 monthly payment).

By paying the extra $120.58 per month towards the principle, you will be paying down the balance every month, reducing the interest payments faster than if you were to wait to pay it at the end of the year.

And if you are concerned you would not have the discipline to pay the extra each month, simply have the mortgage company automatically withdraw the house payment from your checking account each month. And before you know it, you'll have your house paid off.

PS: When applying for a loan, always ask what the monthly payment would be if you got a 15-year loan. You'd be surprised at how little the difference is from a 30-year loan. This is because the interest rate is higher for a 30-year loan.

God bless!

Dave
Bremerton, Washington
U.S.A.