A Bi-Weekly Payment Plan (BWPP) works on the nuance between “Every-other-week” and “Twice-a-month” mortgage payments. In a BWPP arrangement, half payments are made every other week (26 half payments per year) which adds up to 13 full payments. If you paid your mortgage twice a month (24 half payments per year) it would be a traditional 12 full payments.
The misconception is that the BWPP applies the extra principal with each half-payment. Yet it can’t do that per the existing terms of your mortgage contract. So really there is no magic of thinking you are making forward payments every two weeks. The sums are collected and batch paid with no advantage to the consumer other than sneaking a full payment out of you each year.
While making an extra mortgage payment each year sounds good, that’s only true if the dollars are allocated toward the principle of the loan. With a BWPP that’s not the case, which makes a BWPP a very basic tool for overpaying your mortgage. Overpaying your mortgage is a complicated irreversible action that should not be done to the detriment of rising credit card balances, ballooning HELOC’s, underfunded retirement planning, or educational goals.
BWPP does NOT magically re-amortize your mortgage every two weeks. It does not and cannot alter the terms of your mortgage contract.
Conditions of BWPP could include:
- A setup fee (in the hundreds of dollars)
- Recurring transaction fees (cumulatively in the thousands of dollars)
- 3rd party servicer will need access to your online banking account (account numbers and authorization to draft)
- Payments will inevitably draft (now AHEAD of your typical schedule) on esoteric dates like the 5th of May, Friday the 13th, Super Bowl Sunday, and Leap Day.
- Consider the “Blue Moon Effect”: If your first payment is drafted on the 1st, 2nd or 3rd of the month it is very likely that you will have 3 mortgage payments drafted that month.
So, is a Bi-Weekly Mortgage Payment Plan a Scam?
Setting up your own bi-weekly payment schedule to submit 26 payments for your mortgage each year may be a wise financial decision depending on your other debts or financial obligations. You don’t need any third party to be involved in setting your mortgage payment schedule. However, you will want to be vigilant when considering a Bi-Weekly Payment Plan if a third party is asking to be involved. Many BWPP products are designed solely for the benefit of the vendor and can lead to the homeowner overpaying a mortgage and accumulating additional unnecessary fees.
Written by John Donlon of Gold Coast Mortgage Service, Inc.