Over the years I’ve had a lot of my clients ask me about the various bi-weekly payment programs that exist. In general my answer is “Do it yourself. It’s cheaper.” Keep in mind, I have the product, and can earn money on the sale of the program. I just can’t think of any good reason to pay to be enrolled.
Let’s look at the premise that the bi-weekly program works under. If you were to make one payment every month you would obviously make twelve payments each year. Now, anyone who is paid every other week understands that there are 26 pay periods in the year. Wait a minute, twelve divided by 2 is 24. That’s right, the magic of the bi-weekly payment program lies in the fact that you will essentially make one additional payment each year to the mortgage company. Could you do that yourself and avoid paying anywhere from $295.00 – $400.00 to be enrolled in the program? This doesn’t include the fact that you’ll be paying somewhere between $1.50 and $5.00 for every withdrawal the payment plan coordinator initiates for you. Of course you can do this on your own.
Now, some people will argue that it’s just easier, more convenient, or helps them be disciplined. I would submit that with today’s banking system there are tools for the individual that will erase all of these arguments. You can set up automatic withdrawals with any of the major mortgage servicers. You can also request that they take a set additional amount out each month to be applied towards principal reduction. Not only does this give you more control over your money, but it allows you the ability to make 12 equal small payments to your lender as opposed to 2 relatively large payments each year. I think it is much easier to budget for the smaller payments. You can also decide how fast you want to pay your mortgage off and make payments that are appropriate for that goal. The bi-weekly plan won’t work for this. The fact that payments are going to the mortgage lender every other week has a negligible effect on your interest paid over the life of your loan, and will more than be compensated with the money you save by not paying the usual plan fees.
The bottom line: Contact me for help in calculating the additional monthly amount necessary to accomplish your goal. Contact your mortgage servicer with that information and request that they make an automatic withdrawal from your account each month in the amount we come up with. They’ll be glad to do it, and you’ll save some money. After all, that’s what this is all about, isn’t it?
