I really don’t like mail. Unless it’s my birthday, nothing makes me happier than seeing an empty mailbox. That’s because each and every day I’m hammered with deals, offers and not-so-subtle sales pitches.
Yesterday was no different.
After walking the dog around 5:00 pm, I pick up the mail and deliver it directly to the island in our kitchen – where my wife will decide if it “makes the cut.” On this day, she was especially intrigued by a letter from our bank offering to help us pay down our mortgage quicker. That’s right, rather than receiving a solicitation to siphon money from our bank accounts – we receive just the opposite.
The letter in question informs us about a Biweekly Payment Program that will reduce our mortgage term by about 7 years and will ultimately result in an approximate interest savings of $14,060.
“Sweet! Sign me up!” I thought.
At the bottom of the letter, it says “Contact us by December 18, 2014 to inform us if you want to change to the biweekly option for your $74,000 loan.”
Wait a tick! (best read with an British accent)
Why is this “program” only available for another month? Is our bank only feeling generous because of the holidays? So generous, in fact, that they reduced our loan amount to $74,000?
Nationwide Biweekly Administration – Who Are They?
Upon further inspection, I discover that this solicitation is from a random company that has no affiliation with our bank – hence the unspecific loan amount and savings estimate. This company collects your mortgage payment every 2 weeks and sends the combined biweekly mortgage payment to your lender on a monthly basis. If it sounds rather elementary, that’s because it is.
By budgeting around biweekly mortgage payments, your bank account is drafted 26 times resulting in 13 mortgage payments in a given year. By making 13 mortgage payments versus 12 traditional mortgage payments, you really can save A LOT of money. But, this is no “secret” as the companies website claims.
To see how quickly you could payoff your mortgage with biweekly payments, check out Bankrate’s Biweekly Mortgage Calculator.
Example of savings:
$200,000 Mortgage @ 5% Interest Amortized Over 30 Years
- Monthly Payment: $1073
- Total Interest: $186,511
- Payoff Timeframe: 30 Years
- Biweekly Payment: $536
- Total Interest: $150,977
- Payoff Timeframe: 25 Years
Nationwide Biweekly Administration – What’s In It For Them?
As you can see, you can reduce your payoff period by 5 years resulting in an estimated total interest savings of $36,000; so, the benefits of biweekly payments are clear. But, the question remains – can’t I do this on my own? Why do I need another company? And what’s in it for them?
After a few attempted phone calls to the number on the mailer, I was never able to get through (apparently they don’t want my business). So, I took my research to Google and discovered that similar Biweekly Payment Programs cost a couple hundred dollars upfront, a small annual fee along with a per transaction fee. For example, you may pay $399 upfront, $39 annually and $1.50 for every payment that you make. The program administrator will remind you that the associated fees are minimal relative to the amount of interest savings you’ll recognize!
Furthermore, I found that the “Interest Minimizer” (what they call their biweekly payment service) is only one of their programs. They have an “Advanced Interest Minimizer” program that promises to help you get out of debt in the quickest way possible by using their proprietary algorithms. All that it will cost you is $3500 upfront.
I have to admit that I was intrigued with how their software greatly complicates the process of paying down debt with “interest floating and cancellation strategies.” I would prefer to simplify the process by aggressively paying off high-interest debt and passively paying down low-interest debt – OR – you could always buy Dave Ramsey’s Total Money Makeover for $10. Regardless, $3500 seems like a steep price for any consumer looking to rid themselves of debt.
Biweekly Mortgage Payments – How To Do It Yourself
If you read the most popular post on my blog (The Ideal Budget for a Single Guy), you’ll notice that I recommend budgeting around biweekly paychecks – rather than monthly income – because it’s an easy way to pocket 2 “extra” paychecks each year. Making biweekly payments toward your mortgage is the same strategy – just with a different goal.
If your ultimate goal is to pay down your mortgage as quickly as possible, here are 2 biweekly payment strategies that I recommend:
1. Write Down Your Monthly Mortgage Payment
- Ex. $1073
2. Divide Your Monthly Mortgage Payment By 12
- Ex. $1073 / 12 = $89
3. Add That Number To Your Monthly Mortgage Payment
- Ex. $1073 + $89 = $1162
4. Change Your Automated Monthly Mortgage Payment To That Amount
- Ex. $1162
-OR- Keep Your Mortgage Payment The Same & Set Up An Automatic Transfer For The Difference
1. Use Your Annual Tax Refund To Make A One-Time Payment Towards Your Mortgage
Under each option, make sure you’re paying the lowest interest rate that you qualify for. I recommend LendingTree for things like this, because they’ll match you with up to 5 lenders who will compete for you business so you will feel confident that you’re paying the lowest possible rate.
It’s tempting to inquire about biweekly payment options once you see the amount of money that can be saved. However, with a little self-control and discipline, the same results can be achieved by yourself.