Cagey Consumer

Banks Continue Charging for Bi-Weekly Mortgage Conversions

Just as "credit card protection services" provide a convenient way of notifying banks if your credit cards are lost or stolen, bi-weekly mortgage conversion programs provide only convenience, without any savings themselves. Yet many of the biggest banks and mortgage service companies are asking people to pay hundreds of dollars without giving them the whole story.
If you have a mortgage on your home, you may soon receive an offer from your mortgage company to participate in a bi-weekly mortgage offering such as BiSaver.

Is it possible that your mortgage company is really trying to save you money? Or could they be looking for a way to increase the profits earned on your mortage? Which seems more likely?

Although biweekly mortgage programs promise to save thousands of dollars while paying off your mortgage years earlier, that savings is not a result of any kind of biweekly magic, but results from the compounded interest that you avoid paying by increasing the rate at which you repay your mortgage, something that most mortgage agreements allow you to do simply by sending additional funds along with a note asking that the extra amount be used to reduce your principal.

Making additional payments isn't always a good idea

If you have no credit card debt, you don't have a car loan, and you're not planning on taking out any other consumer loans for the remainder of your mortgage term, making additional payments of principal might make sense. It really depends on what you'd do with that extra money if you weren't sending it to pay off the mortgage faster. The extra payments you send to a mortgage company are like investing in a multi-year certificate of deposit at the bank, except that you have no option to withdraw that money.

Bi-Weekly Conversion Plans Unnecessary

When you use plans such as BiSaver, you pay hundreds of dollars for this privilege up front, and you may pay additional fees with every payment. Even worse, these plans obligate you to make these increased payments, and may subject you to penalties if you change your mind. In other words, you can spend money for the opportunity to be penalized when your situation changes and you don't have the money to increase your rate of payment, or you can send those fees to the mortgage company as a reduction of principal, and change your mind any time you want without any penalty. Foolish or fraudulent? You decide.

Two Payments a Month Can Rewrite the Cost of a Mortgage (Bank Rate Monitor, 9/17/1998)
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Updated September 5, 2000