Mortgage Payment Programs: Biweekly or Bogus?
One such example of false representation involves biweekly mortgage payment programs. Unfortunately, we hear many reports of companies, whose mailings imply a connection with Space Coast Credit Union, soliciting members to enroll. These mailings promise huge equity buildup and interest savings, and early payoff of your home loan. They also come with a hefty price tag, including enrollment or setup fees, plus ongoing service fees.
It is important to understand that if you sign up for this service, you have not made any change to your existing mortgage. What you will have done is agree to pay a third party for the privilege of making extra payments. While there are benefits to making extra payments on your mortgage, you can take this action yourself at no charge and without involving a third party.
What you need to first understand is that not all of these businesses are financial institutions, banks or even mortgage servicing companies. By enrolling, you're giving a virtually unknown company authorization to debit your account for payments. By going through a third party, you could put yourself at risk for late payments to your mortgage lender. Also, if the company suddenly went out of business, you would still be liable for payments to your mortgage lender.
There is also the chance the company could pay your loan monthly, even though you are making payments biweekly. Which means that you are actually loaning the company half of your mortgage payment – interest free – for at least two weeks.
This is what the mailing typically offer: Instead of making one full mortgage payment every month for 12 months, you send the company half of your monthly payment every two weeks. What cuts away at your interest are the two additional half – payments going toward the principal each year. By making 26 payments of half your mortgage, you are in effect making 13 monthly payments instead of the usual 12. Depending on the terms of your loan, and by whose calculation, one extra payment a year could eliminate from 7 – 9 years off a 30 – year loan.1
A true biweekly mortgage – one that you set up when you buy your house or when you refinance – is rare. Not every lender offers them, including Space Coast Credit Union. But that doesn't mean you can't get many of the same benefits of a biweekly payment schedule for free!
If you are interested in making additional mortgage payments, there are a few things you should consider, such as: How long do you plan to stay in your house? How close is your retirement? Would an early mortgage payoff facilitate other planned financial goals, i.e., your kids' college or a career change? Or, would it make those plans more difficult? Should you spend the extra money in an IRA?
Also, review your existing mortgage and determine how to make the additional payments:
You could pay an additional one – twelfth of your mortgage each month. If your mortgage is set up to deduct monthly payments automatically from your SCCU checking or savings account, you can also set up to have an additional amount deducted and specify that it go toward the principal. This additional money must be the same amount each month, and can only be deducted from a checking or savings account you have with SCCU, not drawn on an account from another financial institution. To set up automatic deduction for the additional payments, call Express Sales.
If you want to make periodic additional payments, simply mail your check to the SCCU post office box for Deposits and Payments, and specify on the check that the additional amount go toward the principal.
- If you get paid every two weeks, take half of your mortgage payment from each paycheck and put it into an SCCU "My Way" savings account. At the beginning of the month, write your mortgage check from that account. At least twice a year, you'll be including the equivalent of an extra half – payment. Specify on your coupon that the additional money go toward the principal.
- If you get a bonus or tax refund each year, add the equivalent of one extra payment to your mortgage. Again, specify that the additional money go toward the principal.
Lastly, it's important to understand that companies get information about your SCCU loans from publicly available information. SCCU does not sell or disclose any information about members' accounts to other lenders or servicing companies.
If you're in doubt as to whether or not an offer you receive in the mail is from the credit union, please contact the Member Service Center.
1Sources: Sound Money, Bankrate.com
The information on this page is for educational purposes only. SCCU is not engaged in providing estate planning or other advice. Please consult with a competent estate planning professional regarding any specific estate planning questions.