Your mortgage company’s statement blares: “You can save years off your mortgage”. Who wouldn’t want to pay off their mortgage early with minimal outlay. The offer sounds too good to be true- because it is too good to be true.
The fine print will tell you that you will need to pay your mortgage bi-weekly, which may sound fine to you because you are paid every two weeks anyway. The savings come from the fact that instead of having 12 payments a year you have 13 because after 12 months your mortgage company (or their partner) will collect 26 half payments or 13 full payments. This 13th payment is applied to your mortgage to gain you savings. All this is legitimate.
Be sure to ask if your bi-weekly payments are applied to your mortgage more than one a month. The catch is that the company charges you a fee to join their plan and a recurring fee each time you pay bi-weekly. Why are you paying this fee you could do the same procedure yourself by just sending in one extra payment, without sending in any fees.
Solution If you feel that it’s worth it to prepay your mortgage- do it yourself and save money on the fees.
Shmuel Shayovitz is Vice President at Approved Funding.