Bi-Weekly Mortgage: Less Than It Seems

by Jeffrey Hogue
June 10th, 2008

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Have you ever heard of a bi-monthly program for your home mortgage?

For those who do not know, so-called “bimonthly” programs are programs designed to collect at least 50% of your monthly mortgage payment every other week. These bi-monthly (more aptly named bi-weekly) programs hold themselves out as being a great way for a borrower shave years off of a 30 year mortgage.

In theory, by paying 50% of your monthly mortgage payment every two weeks saves a borrower substantially on interest on his home loan. After each payment, you pay off more and more of the principal, which basically stops the accrual of interest on larger principal balance. Further, with the payment of 50% of your mortgage every two weeks, a borrower ends up making an additional loan payment per year. A number of different financial magazines have touted these programs as financially intelligent options for any home borrower.

You would think that there is no way that a program like this could subtly deceive borrowers out of their own financial gain, right? Wrong. A few years ago, I opted to sign up for a bi-monthly program to pay for a home loan on an investment property. I received an unsolicited brochure explaining that for a one-time $399 fee, I could enroll in a bi-monthly loan program to pay off my current loan. I ran the numbers, and I decided it was a no-brainer since I would more than recoup the $399 with my interest savings.

Boy was I stupid. Much to my dismay, I have recently found out that my great “bi-monthly” loan program did not operate like I thought it did. For some reason, the 50% of my monthly mortgage payment that gets deducted from my checking account does not (I repeat does not) get applied to my home loan until the end of the month! I called the bi-monthly servicer and they informed that while my payment goes directly into the lender’s bank account, it does not get credited to my account until the end of the month. So much for taking advantage of an interest savings opportunity. Instead, my lender gets the benefit of earning further interest on my money!? This is flat out wrong, disingenuous, and deceitful.

As stated by mtgprofessor.com, “[m]any lenders offer loan repayment programs that differ from the standard monthly payment arrangement. The inducement is an earlier payoff. These programs can be confusing, and the claims made for them are often exaggerated.” All I can say is well put.

My anecdote is further evidence of the necessity for federal regulation on this industry. Obviously, the industry cannot police itself; there are too many abuses that go unchecked. Further, the common lay person is completely unfamiliar with the intricacies of the loan world. Due to the pervasiveness of the loan industry there needs to be checks and balances in place. There needs to be ethical standards. There needs to be drastic change, and it needs to happen soon.

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Attorney Jeffrey L. Hogue is a partner at the San Diego law firm of Hogue & Belong. Mr. Hogue is also a founder of the Mortgage Accountability Association.

This entry was posted on Tuesday, June 10th, 2008 at 6:42 pm and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

5 Responses to “Bi-Weekly Mortgage: Less Than It Seems”

Mike Norman Says:
June 21st, 2008 at 11:21 am
Hey Jeff: FYI even though the lender doesn’t credit the payment biweekly, the savings in interest and the term reduction are real. So, if someone can have their money debited biweekly and it saves Tens of Thousands of dollars as promised; what’s ingenuous or deceitful? I’d agree with you if the savings didn’t occur. Realistically, the savings are due to an extra half payment to principal every six months, not the fact that the money is debited or applied biweekly.
Suzanne Says:
July 1st, 2008 at 8:52 pm
Jeff,
I simply want to say “THANK YOU”! I have mortgage right now and I was considering the bi-weekly loan. I’m glad that I didn’t go forward with it or else I’ll be another victim.

Althought, I do have an question regarding my 15 year FHA refinance loan with mortgage. They not only charge me with $1600 on PMI (mortgage Insurance) upfront, but they also charge me on monthly basis. The mortgage guy told me that they have to for townhome and condo, also after a year the monthly PMI will just fall off and I don’t have to worry about it. But when I call the lenderÂ and asked them about it, they said the mortgage insurance would continue untilÂ I reach a certain loan amount.

Can anyone tell me is more about the PMI on the FHA PMI?
Rich Says:
March 3rd, 2009 at 7:10 pm
I have a monthly mortgage

I pay biweekly

My mortgage company only credits the account with a payment when the full payment at the end of the month is received

So basically they hold on to 2weeks of pay for me, collect interest and then credit (debit for you financial people) my account with the mortgage payment

Is this legal?

Thanks
Rich
Nirav Says:
April 27th, 2009 at 2:35 pm
Hi,

FHA PMI is last for the life of the loan.If you are going for conventional loan then it will stop after you make up 20% of your downpayment with your home value.I am not sure this will clear off your confusion or not but FHA PMI stays for the life of the FHA loan.You still can refinance and get rid of the PMI but that is going to be another story.
Peter G. Miller Says:
May 3rd, 2009 at 12:26 pm
Nope — not so. The FHA has adopted standards so that the requirement for a monthly insurance payment can end well before the loan term is complete. For specifics, see:

http://www.ourbroker.com/?p=2293

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