Ray, what you said is true. I’m in the mortgage business, and as anyone in the business can tell you people say that they will do it but they don’t. How many extra payments have you made? I sell a bi-weekly program to alot of people that are trying to get there credit back on track so that they can refinance in a year or two. Some people just need a systematic program to follow. If the person is at a higher rate (because of credit problems). If they get into a program like this and get there credit back on track and then refinance after a year or two but keep making the same bi-weekly payment they could pay their house off in 10 to 12 years. If at that time they would put the money they were paying for the house into a good investment (mutual funds) they could have a nice amount to help with retirement.
Tom
I received a flyer in the mail today offering some type of bi-weekly payment plans on my existing mortgage. It says that by paying bi-weekly on a 30 year mortgage, you’ll eliminate 9 years off your mortgage. I know the obvious that you can eliminate half-month’s worth of interest but how do these companies make money? whats the catch here?
Posted by Frank Chin on March 06, 2001 at 07:47:40:
My wife answered one of these flyers and someone actually came to our home to give a presentation. It apprears to me that we’re getting a whole new loan with a bi-weekly amortization schedule, which is how they make their money, at least that what it looked like from the conversion(closig) costs they quoted.
I told the women that I’m aware that I know there are 26 bi-weekly periods in a year, and 12 monthly periods. In other words, you wind up making one more monthly payment at the end of each year.
There are minor savings as the additional payments are paid two weeks sooner, but not enough to justify the costs of getting the new loan.
They also assume I get paid bi-weekly. I was paid monthly, which negates much of the advantage.
Example: If your current payments are $600.00/month
A - Monthly: You pay $600.00x12 or $7,200/year
B- Bi-weekly You apy $300.00x26 or $7,800/year
In this example, you can pay the bank an additional $50.00/month in principal and achieve almost the same thing.
I thanked the lady who came, but advised her that its cheaper for me to increase my monthly payments slightly. She did not argue with my logic.