On the heels of our recent mortgage refinance, we’ve been inundated with mortgage-related junk mail. Among the most common pitches that we receive are offers for bi-weekly* mortgage payment programs.
Almost without fail, these missives are disguised as official-looking notices proclaiming things like “NOTICE OF INTEREST OVERPAYMENT.” They also list the lender’s name at the top, though they indicate in a footnote that it’s listed “for reference only, ” and that they have no relationship with the lender. Rather, your loan information “was obtained through public record.” Clearly, these folks want to get your attention, and they don’t mind mis-leading you along the way.
What is a biweekly mortgage payment plan?
In short, biweekly payment plans are designed to help you pay off your mortgage as much as six to eight years early. That’s the good news. The bad news is that these plans come at a price. Enrollment fees are typically in the $300-$400 range, and some companies charge additional fees on each transaction.
How do biweekly mortgage payment plans work?
You normally make a monthly mortgage payment, resulting in a total 12 payments per year. But what if you were to make a half payment every two weeks instead of a full payment once per month? Given that there are 52 weeks in a year, this works out to 26 half payments, or 13 full payments.
So… This is essentially a fancy way of getting you to make one extra mortgage payment per year. By doing so, you’ll build equity faster, pay less in mortgage interest charges, and close out your loan well ahead of schedule.
Are biweekly payment plans really necessary?
The short answer is no, you can do this all on your own for free. While proponents might argue that these plans add discipline to your early payment plans, you can achieve much the same thing by automating your payments.
Some simple alternatives
(1) Call your lender and ask them if they can handle a half payment every two weeks. Some can, others will charge you for this service, and still others will flat out decline (or get confused). Assuming that they can handle it, you can (and should) automate the payments through your online billpay.
(2) Pay an extra 1/12th of your mortgage every month. With online billpay, you only have to set this up once. While it’s a good idea to designate that the overpayment should go toward principal, every lender that I’ve dealt with will handle such payments properly even without further instructions.
(3) Open a high-yield savings account and deposit half your mortgage payment into it every two weeks. Make your payments from this account and periodically apply the excess (plus interest) to your mortgage.
Of course, this all ignores the larger issue of whether or not you should pay off your mortgage early in the first place, but… That’s a topic for another day.
*Note: Biweekly can mean twice a week or every two weeks. Here, we’re talking about the latter.