Do you have to use one of these companies to set up bi-weekly mortgage payments or can you just send them in?

Question

I just want to know if I have to set them up with my mortgage company, use a third party, or if I can just send them in?

Answer 1

Numerous companies say they will save you lots of money by setting up biweekly mortgage payments. All you have to do is pay an enrollment fee of a few hundred dollars, and often a monthly handling fee, and the payment company will handle the rest.

It doesn't make financial sense.

Most biweekly payment companies charge more than that. But you don't have to pay a hefty enrollment fee to reap the benefit of making half a mortgage payment every two weeks. To understand why, you need to know what biweekly payment companies do and, just as important, what they don't do.

In short, what the companies do is help you make an extra mortgage payment each year. That can save thousands of dollars and shave years off a 30-year loan. What they don't do is apply payments immediately to your loan balance.

When you enroll in a biweekly payment program (one of the most popular is called Equity Accelerator), you authorize the company to debit your bank account electronically every two weeks. The money goes into an account controlled by the payment company. When the company has debited your account twice, it has enough to make a full payment, which it sends to your mortgage servicer.

The magic of biweekly payments is based on the fact that there are 52 weeks in a year. When your bank account is debited every two weeks, you make 26 half-payments a year -- equivalent to 13 monthly payments.

An extra payment a year makes a big difference. For example, someone who borrows $100,000 at 6 percent interest for 30 years would pay a shade under $600 a month principal and interest. Let's say taxes and insurance bring the monthly payment to $1,000. By making an extra $1,000 payment every year, a borrower would pay off the mortgage in 22 years, 2 months, knocking almost eight years off the loan and saving about $34,000 interest.

Save cash by doing it yourself
There are several ways to make an extra payment each year. You could save up your money and make an extra payment each December (or whichever month you choose), telling the mortgage servicer that the extra money should go toward principal. Or you could divide your monthly payment by 12 and send that amount, plus your regular payment, every month, making sure the extra goes toward principal.

Or you could pay a company to debit your checking account every two weeks and automatically make the extra payment for you every 12 months. With most services, you would pay a one-time setup fee of about $200 to $500, plus a service fee of $2.50 to $4.50 for each biweekly payment. Over 22 years, you would end up paying at least $1,600 in fees.

With those fees, why not do it yourself?

Payment companies often split the fees with lenders or mortgage brokers. One payment company offers brokers a 20 percent commission on its $288 enrollment fee -- almost $60.

Some brokers shun biweekly payment companies.

Some lenders will let you write one check that includes the regular mortgage payment, plus extra to go toward principal. Other lenders prefer that you write two checks: one for the regular payment and one for the extra. Ask your lender which method to follow.

Answer 2

The process begins with contacting your current mortgage holder and asking them. Many facilitate the process, many others send you to a third party. There are other ways to accomplish nearly the same goal (paying off your mortgage more rapidly and therefore paying less interest) including

1. Sending an "extra amount applied to principal" that is equal to 1/12th of a monthly payment.

2. Sending an extra payment a year.

Each will result in 13 payments being made in a year instead of 12 - which is what a bi-weekly basically accomplishes.

By no means should you just start sending 1/2 payments every week without coordinating with your lender. They will likely freak out and a month later you'll get your check stapled to a letter that says "We don't really know what you're trying to do here, but we only accept full payments and you're paying less than a full payment." By then you may be late on your mortgage, resulting in late charges and lowered credit scores.

Start with your current lender and work from there, and it should be a straightforward process.

Answer 3

You have to call your mortgage company to set up a bi-monthly payment. Not all mortgage companies offer that feature, you may need to refinance. You can also just pay extra when your bill is due and have it applied directly to the principle.

I never like the idea of using a third party.

Answer 4

3rd party companies will charge you a fee for the bi-weekly mortgage payments. also, i have heard instances where unscrupulous 3rd party companies debit your account bi-weekly BUT still only pay your mortgage monthly. they use your money in the mean time to invest and make money for themselves.

if you do plan on making bi-weekly payments on your own, you want to be sure and make one mortgage payment in advance to be ahead of your payment schedule since if you make only a half payment you will be considered late if the full amount has not been paid by the due date (if you follow what i am saying).

Answer 5

On many loans you can make extra payments against the loan. By making two payments per month, you have less interest accumulate and more goes to principal. First check the details within your loan documents and see if there are penalties for early payment. If there aren't then you should be okay, but it doesn't hurt to talk with you lender.

You can also make one extra payment a year on a loan which can reduce your loan length by as much as 10 years.

The following website will help answer your question as well:
http://money.howstuffworks.com/mortgage.htm/printable

Answer 6

Don't use a third party. If your intention is to pay a little extra every year, you can send in extra every month. If you are looking for convenience, the bank may be able to set up automatic withdraw every two weeks.

Answer 7

That would be a 15 year mortgage. Some mortgage companies won't accept extra payments. Check with your lender.

Answer 8

You should be able to just send them in but I would suggest contacting your mortgage company to ensure that is the case and that the funds get applied properly.

Answer 9

Your mortgage lender must agree to this before you can do it. Some of them will charge a fee for the privilege.