Potential Risks of a Bi-Weekly Mortgage

At first it might sound like a really good deal, a way to pay off your mortgage in advance, while at the same time reducing the amount that you have to pay at any single point. Bi-weekly mortgage companies are growing in popularity due to their convenience and the savings that they seem to offer over a person's standard mortgage, but just because they are becoming a more common payment alternative to regular monthly payment doesn't mean that they are without risk.

How Bi-Weekly Mortgages Work
Bi-weekly mortgages are actually more of a sort of payment plan for your existing mortgage than they are a new loan... you make payments equal to one half of your total mortgage payment every two weeks to the bi-weekly mortgage company and place that money into a trust fund or money market account. The company in turn makes your actual mortgage payment for you when it comes due. Of course, the benefit of this is that you end up paying in the equivalent of 13 mortgage payments each year instead of the usual 12, reducing the total amount that you owe on your mortgage by that amount (and likewise saving you the interest that you would pay on that amount as well. Depending on the amount that you borrowed for your mortgage, this can result in you paying off your loan years in advance and can save you a significant amount of money.

Costs of a Bi-Weekly Mortgage
Unfortunately, bi-weekly mortgages aren't without their problems. One of the more noticeable of these is the fact that the services offered by bi-weekly mortgage companies aren't exactly free. There is generally a setup fee associated with the service, and sometimes an additional fee to set up automatic withdrawals from your checking account as well. Once automatic withdrawals have been set up, there is generally a small service charge associated with each withdrawal transaction. Some bi-weekly mortgage companies even charge an additional fee when your actual mortgage payment is made. While you will still end up saving both money and repayment time, you might find that the constant fees and service charges have taken away a significant portion of the savings that you were expecting.

Potential Problems
The cost of using a bi-weekly mortgage company isn't the only potential drawback to this sort of service. If you are not careful in choosing the company that you use, you may also end up having problems with your mortgage lender itself. While you're making payments to the bi-weekly mortgage company, you are still legally the one responsible for making your mortgage payments. This means that if there's some problem with the payment that the company makes or it's late in arriving at the bank or mortgage lender's office, you'll still be liable for any late fees or other penalties that might arise from the payment problem. You should be able to correct the problem with the bi-weekly mortgage company afterwards, but even so you'll still have to deal with the hassle and the up-front expense of having to cover those fees in the first place. In the case of major payment problems, you may even have to cover the cost of the full payment in order to keep from falling behind on your mortgage while the errors are sorted out.
Other problems that could occur might involve the account that your money is stored in itself; money market and trust fund accounts generally aren't federally insured, so if there is a major account problem that results in the loss of funds there may be few options to recover your money without legal action. This is generally a worst-case scenario, but without some form of insurance for the funds you pay you will be left responsible for your mortgage payments while trying to recover any money lost.

Increasing the Benefit, Reducing the Risk
One of the biggest risks that you take when using a bi-weekly mortgage, however, is simply the risk of paying that much money for something that you could do yourself just as easily. You can greatly increase your savings by working out your own bi-weekly mortgage equivalent, and should be able to pay off your mortgage even sooner. All that you need to do is take your usual mortgage payment and divide that amount by 12, then add that much to your mortgage payment when you make it each month. This will equal out to the equivalent of an extra payment each year, but because you're paying it in each month you'll save even more. Pay half of that into your own savings account every two weeks and you can earn interest on it as well.









 

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