Bi-Weekly Mortgages – Are They All They are Advertised to Be?

When shopping for different mortgages and mortgage rates it is especially important to take the length and structure of the mortgage into consideration among other things. If you’re like me and look at junk mail and spam closely, then you have probably noticed a number of advertisements for bi-weekly mortgages. These mortgages offer homeowners the chance to pay down a home loan more quickly with bi-weekly payments instead of monthly payments. Here is what you need to know about bi-weekly mortgages if you are in the market for a new home.

What are Bi-Weekly Mortgages and How Do They Work?

As the name states, these bi-weekly mortgages involve paying your mortgage every two weeks instead of the usual once a month payment plan. The borrower pays every other week which adds up to 26 payments a year or as many payments as you would make for 13 months, instead of the traditional 12. This certainly helps you pay off the mortgage more quickly than you would under normal circumstances. Not only are you paying more each year, but you are also reducing the principal which in turn reduces the amount of interest you are paying each year.

The money that you pay goes into a sort of trust account where the funds are taken out for the mortgage every two weeks so you need to deposit the money in advance in to ensure that the payment will be made on time. Because you cannot send half a mortgage payment every two weeks, this helps expedite the bi-weekly process without you having to keep track of the fund amount in the account.

What are the Problems with this Mortgage?

The main concern with this arrangement is that it is automatic, which can lead to potential problems with the mortgage payoff. Since you are not the one making the payments, you are relying on the trust account to do this on time. However, this does not always happen. You will need to make sure that you are dealing with a reliable account so that you do not fall behind on your payments without realizing it. Another concern with bi-weekly mortgages is that you are depositing your money into an account with other people’s money, which can cause problems as well. If the account is not keeping track of the deposits or if there are accounting errors, your payment may not be made on time.

There are also high setup costs for bi-weekly mortgages that depending on your situation might not be reasonable if you are already spending a lot of money on the initial mortgage process and closing costs.

Do-It-Yourself?

If you like the idea of having more payments each year to speed up the mortgage payoff process, you might want to think about setting up this kind of system on your own. By taking the money from your checking account, depositing it automatically into another interest bearing checking account and then sending the total monthly mortgage payment from there, you will build up more money in the account that can then be put toward your mortgage to help pay off the amount more quickly. This is free of cost and can even go on to build interest to help you reduce what you owe.

The thought process behind bi-weekly mortgages is good, but if you can simply handle this transaction on your own, why not set it up yourself?