Does It Make Sense To Pay Someone For A Bi-Weekly Mortgage Program?

I had a listener call in last week with a question about bi-weekly mortgage payments. Does it make sense to pay someone to make your payments for you on a bi-weekly basis?

First, let’s go over the concept of bi-weekly mortgages. A bi-weekly mortgage payment is paid every two weeks instead of being paid once a month. As a result of this strategy, you end up paying one additional payment a year and could pay off your mortgage approximately seven years sooner. In most cases, it is almost impossible for you as a consumer to make these bi-weekly payments without the assistance of a biweekly program.

These programs can cost as much as $ 295 to set-up and $ 5.50 a month for maintenance. Are these programs worth it?

There are two other ways to get an extra payment in each year. First, you could increase your payment each month so that at the end of twelve months, you have paid thirteen months’ payments instead of twelve months’ payments.

You could also just make one extra payment at the beginning of the year. Let’s look at the results of these three strategies using a $100,000 mortgage, 30 year fixed, at 7% interest rate.

Strategy 1 – Divide up the extra payment over twelve months
Total Interest Paid $ 105,381

Strategy 2 – One extra payment a year
Total Interest Paid $ 106,660

Strategy 3 – Bi-Weekly Payment
Total Interest Paid $ 103,958.73

It would look like the best strategy is the third one. Remember that I said you would have to use a service in order to make the bi-weekly payments. Therefore, we need to add that cost into the equation.

Costs for Strategy 3:
Total monthly costs of $ 5.50 a month over lifetime of program $ 1,545.50
Total upfront cost $ 295.00
Total Costs $ 1,840.50

So does it make sense to use a service?

Strategy 1 You do it yourself
Total interest $ 105,381

Strategy 3 You pay someone for a bi-weekly program
Total interest plus program costs $ 105,799.23

Why pay someone an additional $ 418.23 to do something that you can do for yourself for free?

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