I recently had a friend show me a post card he got in the mail that said something like, "You have a mortgage with AmeriFirst Home Mortgage and we can help you pay it off early and save you thousands!" This friend asked if this bi-weekly mortgage service advertisement came from us at AmeriFirst, because he was thinking about paying for it. I decided it was time to bust this myth, for him and for you.
The ads will tell you that paying Company X a yearly fee will help you pay down your loan balance sooner, saving you a ton of money on your mortgage. Sounds great, except for that fee. Also, it's not a frequency issue when it comes to paying off your loan early. Some bi-weekly mortgage payment services aren't being exactly honest with you. I won't call it a scam, but let's let you be the judge.
Would you pay someone to walk your outgoing bills to the mailbox for you? Of course not. That's essentially what's happening here. This third-party service vendor (and let's be very clear - it's a third party, not AmeriFirst) offers to take your usual payment every two weeks instead of once a month. Twice a year this results in 3 half-payments in a month, meaning one extra payment per year. That extra payment, and only that extra payment, is what shaves years off your repayment schedule. So it's the extra month that helps, not the supposed bi-weekly payments.
AmeriFirst co-founder and president Mark A. Jones breaks down the bi-weekly payment myth. Learn how you can shave years off your loan without paying someone to do it for you.
You can click here to view the video: Bi-weekly Mortgage Payment Service: Scam or Service?
Here's an example for you. If your house payment is $1,200 a month, you divide that by 12 months. That $100 can be applied to every month's bill, turning your 12 payments into 13. Make sure you tell the lender or bank that you want the extra applied to the principle. Now you've made an extra payment for the year, with no fees and no one having to hold onto your money for you. That's right - these companies hold your money and make the payment for you once a month. If they're late for any reason, it's your credit history that suffers, not the company's credit.
Our advice: avoid bi-weekly payment services and talk to your lender about budgeting the extra payment. You can learn more about buying your first home with "The Essential Guide to Buying Your First Home" at the button below.
(writing checks: Flickr user Jesse Hull)