The answer is “No” instead make one extra payment a year on your own.
There are many companies that claim to help you save a good amount of money by setting up bi-weekly mortgage payments. You just need to pay an enrollment fee, monthly handling fee and administration fee. The payment company handles everything else.
However, these services don’t directly help you save any money.
“Don’t pay any money to a third party to help you set up a biweekly mortgage,” ~ Anthony Hsieh, chief executive of Home Loan Center
It is better not to make any payments to a third party to set up your bi-weekly mortgage. There is no need to pay a huge enrollment fee to reap the benefits of making half mortgage payments every two weeks. In order to understand the reason, you need to know exactly what bi-weekly payment companies do.
Understanding Bi-Weekly Payment Companies
In simple terms, these companies help you make one extra mortgage payment every year. This can help you save a lot of money, and shave years off of a 30 year loan.
When an individual enrolls in a bi-weekly mortgage payment program, they authorize the company to debit their bank account electronically once every two weeks. The money then generally goes to an account owned by the payment company. Once the account has been debited twice, the company has sufficient funds to make a full payment. This payment is sent to your mortgage company.
What they do not do is send the extra money to your mortgage servicing company in real time. Meaning, they are holding on to your extra money until the end of year, and using your money to increase their profits.
If you use a third party to debit your account every two weeks, most service providers charge a one time set up fee, which may be around $200-$500. They may also charge a service fee around $2.50-$4.50 per transaction. Over a period of 22 years, you might pay up to $1,600 in fees.
One Extra Payment A Year
It is important to understand that each year has 52 weeks. This is where bi-weekly payments turn out to be magical. When the bank account is debited once every two weeks, you’re able to make 26 half payments every year.This is equivalent to 13 monthly payments.
One extra payment a year makes a huge difference. For instance, an individual who borrows around $100,000 at 6% interest for 30 years will pay around $600 in principal with interest every month. Let us assume that insurance and taxes make your monthly payment around $1,000.
When you make an additional $1,000 payment each year, you can pay off the mortgage in 22 years and 2 months. This can knock around 8 years off your loan, and help you save around $34,000 in interest.
There are many different ways to make an additional payment every year including:
- Paying half of your mortgage payment on a bi-weekly basis
- Divide your monthly payment by 12 and send this amount in addition to your regular payment every month.
- Make one extra payment a year on your own
Do It Yourself and Save Money
The Tina Mitchell Team suggests that you “Make One Extra Payment A Year On Your Own”.
By simply sending an extra mortgage payment each year you will:
- Save yourself thousands of dollars in interest
- Shave years off of your loan agreement
- Save the fees that a third party vendor would charge you to do the same
- Keep that money in your account earning longer
There is no benefit to using a bi-weekly mortgage payment company to help you save money. You can simply do it yourself with a little bit of planning.
Be sure to tell your mortgage servicer that the additional money should go toward your principal amount.