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The Truth about Bi-Weekly Mortgages

Posted by  on Apr 16, 2009
 
If you've actually been looking at the spam emails that you get, you might have seen various promises of being able to get a mortgage with lower payments. These ads also promise that you will cut the time it takes to pay off this loan as well as pay less overall for what you have borrowed. But if you're like most of us, you probably dismiss these ads as being too good to be true. You might think that these loans couldn't possibly be legal, so you toss them into your email's garbage bin without a second thought. However, you might not want to hit that delete button just yet.

What is a Bi-Weekly Mortgage?

Many of these 'too good to be true' ads are actually advertisements for bi-weekly mortgages. And just like the name implies, these loans are paid for every other week, making the payments much lower than a monthly payment plan with a traditional mortgage. You would make 26 payments each year as opposed to the regular 12 and since this adds up to an extra month's worth of payments, you will be paying more each year for your loan, reducing the interest you accumulate as well as the principal that is left at the end of each year.

What happens is that the lending company lets you transfer half of your mortgage amount to a sort of trust account every other week. At the end or the beginning of each month, those funds are then sent as one payment to the bank where your loan is funded. This allows you to not have to worry about making your mortgage payments as your money is directly debited, allowing you to not really be a part of the process.

What are the Advantages?

There are a number of advantages when it comes to bi-weekly mortgages. First of all, having to have the money in your account every other week is a good incentive to be responsible with your money. Since that money is going to be gone every two weeks, you need to make sure you are always keeping that money instead of spending it on high ticket items that you can not afford.

With a bi-weekly mortgage, you will also find that you are going to be able to pay down that overall loan faster because of the additional payment each year. Though this doesn't sound like a lot of money to add to your loan, it does certainly add up to savings in the long run.

What are the Disadvantages?

But as with any loan agreement, there can be problems that you encounter along the way with a bi-weekly mortgage. Because you are sending your money to a trust account, you can have troubles in getting your mortgage paid on time. Of course, this doesn't happen often, but since you are not in control of the actual mortgage payment, this is always a concern. And since you're not the only one adding money to this large trust account, there can be issues at times with payments not going through.

Another concern with the bi-weekly mortgage is that you might have troubles with fraud in terms of the mortgage processing company. This is not as often the case, but if you begin to get letters from your bank, this can be the sign of a larger problem that you might have to deal with.

There is also the fact that you need to spend money in order to have this kind of mortgage setup — a processing fee of up to $400 in the beginning.

Who is the Best Fit for the Bi-Weekly Mortgage?

If you are disciplined about your money and you've looked into finding a reputable bi-weekly mortgage company, this can be a good fit for you. When you're ready with the money every other week and you are able to be assured that your money is going to where it needs to go, you will save money in the long term.

However, if you're fairly proficient at handling your own money, you can set up the same kind of system for your mortgage payments on your own — for free. All you need to do is set up a separate account and have your mortgage payments direct deposited or transferred there every other week. When your mortgage payment is due, then you just need to take the money from this account.

Bi-weekly mortgages are a good idea for those that want to try to make headway on their loans, but don't have a lot of money to do it. Of course, you don't have to go to a company to help you with this process — you can simply talk to your bank about how to set up every other week deposits and monthly mortgage payments.

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