Bi-Weekly Mortgage

[klucich]

What is the name of your state? MO

I have an offer from Fidelity Financial Group, LLC in Columbia, MO to convert my existing 30 year conventional loan over to a true Bi-Weekly loan. Can someone tell me what I need to know to be sure this is on the up-and-up? I don't know these people from Jack and I was wondering what I should know, or to be aware of. I do know my current lender, Chase, has told me they in the past that they do not offer this type of mortgage.

The following is a quote from an e-mail I received:

"Make sure that you guy’s understand that nothing changes with your current mortgage. You still have the same lender the same payment and the same terms the only thing that changes is that instead of making the payment to the mortgage company, a 3rd party makes it for you and in return it saves you over $40,000. I know it is a lot to look at but this changes nothing in your current loan and only appropriates the payments where the principal is paid off quicker."

Thanks,
Kim

 

[moburkes]

You can do this on your own for free. Take the principal and interest amount of your monthly payment. Divide it by 12. Take that number and add it back to the principal amount. That is the payment that you will make each month. It will add up to 1 extra monthly payment being made each year.

For example, if your monthly payment is $600 (principal and interest, no taxes, etc included), then $600 divided by 12 is $50. So, pay $650 each month instead of $600. That is like making 1 extra payment each year.

Or, you can take your monthly payment and divide it by 2. Pay 1/2 before the payment is due, and pay the other half on the due date. So, with a $600 payment, half of that is $300. If you pay $300 every other week, you will still be making an extra payment each year.

This way it is free for your, and the money goes to the bank immediately. When you use a company, they hold the extra money until the end of the year, and they earn interest on your money in their account.

 

[You Are Guilty]

You can do this on your own for free. Take the principal and interest amount of your monthly payment. Divide it by 12. Take that number and add it back to the principal amount. That is the payment that you will make each month. It will add up to 1 extra monthly payment being made each year.

For example, if your monthly payment is $600 (principal and interest, no taxes, etc included), then $600 divided by 12 is $50. So, pay $650 each month instead of $600. That is like making 1 extra payment each year.

Good advice and I'll throw one more idea out there. Money permitting, if, using the $600 example here, instead of paying $650 x 12 months, you pay $600 x 13 months, with the catch being the "extra" payment is made in January, then you save even more money in the long run. (You knock $600 off your principal so early that it doesn't accrue interest the rest of the year. Using the $50+ extra/mo. route, you still pay interest in $550 in Month1, $500 in Month2, and so on).

Of course, since people don't always have an extra month's mortgage payment laying around, it's still better to pay a little extra per month, than nothing extra ever. (It's been a while since I took accounting 101, but I think even the 1 extra payment per yearl on a 30 year-fixed knocks the term down to around 23 years. Not too shabby.)

 

[moburkes]

Yep, its about 7 years.

 

[klucich]

Be-Weekly

My payment is 927 and I pay 1050, which I pay only once a month. You mean if I send half my payment every two weeks they will do that? I don't have to be set up on any type of plan?

I was also told to be aware of fake bi-weekly plans that actually hold your payment until the end of the month, where it is only posted to your account monthly, and you only come out making one extra monthly payment per year, which they said was not a true bi-weekly mortgage. That is not what I want. I want half of my payment posted every two weeks.

 

[moburkes]

Then do it yourself, as was suggested above. No need to pay someone to do what you can do for free.

 

[efflandt]

klucich you have to make your monthly payment when due, your lender will not accept half of that at a time. But you can add more to any payment, and that will apply towards principal, which will end your loan sooner. It does not reduce future monthly payments, it is just that your loan ends when the principal is fully paid off.

Initially most of the payment is interest, so the sooner you pay any extra, the more it shortens the loan.

I have received mailings from Fidelity Financial Group, LLC, but have no clue who they are. I just know they are NOT in any way connected with the well known Fidelity Investments. And I would be cautious about anyone who tries to make it sound like they are somebody they are not.

 

[moburkes]

You can send 1/2 of your payment IN ADVANCE. No one is telling OP to send 1/2 on time and the 1/2 half 2 weeks late.

 

[klucich]

Bi-Weekly

Thanks for all the great advice guys! I will have more time to look into this over the weekend and come back with questions. I am very busy here at work and really can't give this my full attention until this weekend. Fidelity will be calling me this evening to explain more, but I think I am leaning toward the "do it yourself" approach from what I have been able to skim over here.

I would really like to cut a lot more time off that 23 year mortgage...more like another 6-7 years off that would be ideal. I will be able to pay more per month than we are now, beginning next year, but then again, I don't want to get locked into higher payments either. We have only been paying on this since 2-03. Original loan was 168,000 and we now owe $150,000. Interest is at 5.25%. I am 49 and he is 56 and already talking about early retirement. Myself, I don't mind working, but not forever. The only other thing is that we already have about that much again in equity since I already owned the 4 acres and we built a modular home, which cut costs dramatically.

Ok, I quit now. More later. Thanks again.

 

[LindaP777]

I think I am leaning toward the "do it yourself" approach from what I have been able to skim over here.

Indeed! Do it yourself, there is nothing from stopping you! I get the same offers from national City all the time! They charge you $250 to set this up!!! Just pay more, or more often (26 bi-weekly payments of what would be 1/2 monthly mortage = 13 monthly payments).

 

[klucich]

Bi-Weekly payments

This is my problem. I don't believe my lender just accepts (and posts) bi-weekly payments.

As Efflandt has pointed out:
"you have to make your monthly payment when due, your lender will not accept half of that at a time."

I want to pay the extra AND make bi-weekly payments which in turn would cut the interest on my mortgage even more.

I am wondering how Fidelity can set this up for me if Chase does not even have a bi-weekly plan.

 

[moburkes]

The money sits in a "suspense" account until the 2nd payment is made. However, while its sitting there, the interest stops accumulating. Call them up. Otherwise, you can continue doing what you're already doing which is paying extra.

You said that your payment is $927 (without taxes and insurance). An extra $77.25/month s 1 extra payment a year. You're making almost 2 extra payments a year. Go to $1081.50/month, and you're there. On average, 1 extra payment a year knocks off 7 years. So, without having all of the information available, you're knocking off, probably, 12 years. Go to bankrate.com and look at their mortgage calculators. At the top click calculators, then mortgage. You will be able to run the numbers many different ways, to see where it will get you. Good luck.

 

[klucich]

Bi-Weekly

Ohhh. That is what I didn't know. The interest stops accumulating.

 

[efflandt]

I guess you would need to do the math (or set up a spreadsheet) to see if some 3rd party plan was beneficial to you. With a conventional mortgage the lender calculates interest monthly and any payment received early is accounted for when the next monthly payment is due. Although, any extra payment beyond the monthly payment due would be credited against principal when that payment was due. Do these other companies pay some sort of interest on the money you are paying ahead bi-weekly?

It might be different if you have a 1st lien HELOC instead, where interest is compounded daily, but even then, I a doubt if they would apply partial payment against principal before the next due date (maybe only if or when they receive more than next payment due).

If you are a spreadsheet wiz, you might even compare with doing it yourself. Do a partial direct deposit of your paycheck to a money market account that earns ~5% taxable interest or 3%+ non-taxable with check writing (and/or electronic bill payment) and get interest on the bi-weekly accumulation until the payment is due.

 

[nextwife]

I simply add an extra 5 to 10% to each payment, to be applied to principal. That also accelerates the payoff, because each successive payment is on a somewhat smaller balance, and thus less is needed toward interest the next month.