You may have seen ads that say, “Pay off your mortgage years early!” These are usually ads for companies promoting a bi-weekly mortgage program. 

 

There is no “magic” here, it’s just simple math. Normally you make 12 payments per year to your lender. In a bi-weekly plan, you pay half of your normal payment every two weeks. There are 52 weeks, so that’s 26 half payments, which means you are paying the equivalent of 13 payments each year. The extra goes to reduce your principal (some lenders require you to tell them to apply it to the principal or they’ll hold it in a “suspense” account). The company will charge you several hundred dollars to administer it for you, but you save thousands in interest. 

 

Most financial “experts” are against signing up for these programs. They say you should just do it yourself and save the money. I agree with that in principle, but that argument only makes sense if you actually have the discipline to DO IT in order to get the savings. Their other argument is that by doing it yourself you free yourself from the obligation to do it contractually. This means if you come up short due to unexpected expenses some month, you can just skip it that month, and that does sound like sage advice to me.

 

But several bi-weekly companies just made the news recently when it was found that they were collecting payments from their members but then NOT sending them in early. They would sit on the funds and collect interest, then send the whole payment in just before the due date. So they were collecting the admin fee AND extra interest (called “float”) but the customers weren’t benefitting as much as they should have. So if you want to pay extra to your mortgage, just do it yourself. 

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