Are All Bi-Weekly Mortgage Programs The Same?
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No. Bi-weekly programs can be divided into two groups: those programs operated by lenders and those programs operated by folks who are not lenders.
Third-party non-lenders collect payments bi-weekly and then make payments to the original lenders. This is something that any borrower not facing pre-payment penalties can do without paying several hundred dollars up front to a third-party, or a few dollars with each payment.
As well, those interested in bi-weekly mortgages should ask if the third party non-lender is licensed, insured (how much), bonded (how much), etc. Ask if there is a requirement for the third-party lender to hold funds in an escrow account, an important protection in the event of a bankruptcy, judgment, or fraud.
Also, while borrowers may be making bi-weekly payments, some bi-weekly non-lenders do not. Instead, with some programs 11 regular payments are made as well as a larger 12th payment. Thus the borrower does not get the full benefit of a true bi-weekly schedule.
But, who needs a bi-weekly program? That just means 14 extra checks to write each year. If you have a loan without prepayment penalties a far-easier approach is to simply increase your monthly payment. Since lenders do not want to process an additional 14 payments a year — and generally won’t, steady pre-payments will be greatly appreciated under most loan programs.
Speak with your lender about available options if you have an interest in prepaying your mortgage. Be certain to ask about any prepayment penalties.
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