The simple fact is, the sooner that a borrower can pay off his/her mortgage, the less money he/she has to pay overall. That is just the nature of interest and repayment schedules work. In an effort to help borrowers, many lenders offer mortgages with modified repayment schedules. However, while these accelerated repayment programs seem reasonable on the surface, they are often loaded with hidden fees and drawbacks that only become apparent with careful examination.
At California Mortgage Advisors Inc., we appreciate the desire to pay down debt quickly. However, we also appreciate advising our customers to do what is in their long-term best interest. Sometimes, this means encouraging borrowers to avoid certain loan programs. Our Mortgage Advisors are available now at (800) 927-6560 to provide information about bi-weekly repayment plans and other early repayment options.
What is a Bi-Weekly Mortgage?
In a traditional mortgage, the borrower makes a single full payment on the first of each month for a total of 12 payments per year. With a bi-weekly mortgage, the borrower instead makes half of a full payment every two weeks. At the end of the year, this means that a total of 13 full mortgage payments will have been made. The extra payment is applied to the loan principal. The benefit of course is that equity is built at a faster rate and most loans can be paid off several years early.
What many lenders neglect to mention as part of their sales pitch for a bi-weekly mortgage is that the programs is not a no-fee option. Most lenders charge borrowers an upfront fee when enrolling in a bi-weekly mortgage program. Upfront fees vary from lender-to-lender with most institutions charging a minimum of several hundred dollars.
This is in addition to the fees normally associated with obtaining a mortgage. Some lenders also charge borrowers monthly service fees or draft fees associated with the bi-weekly payments. Fees can run upward of several dollars per transaction. Most lenders don’t process the extra payments themselves. They are instead sent off to a third-party who holds the extra payment until it is applied by the lender at the start of each month.
Early Payoff Alternatives
At CMA, we advise that borrowers interested in early repayment plans to also consider an early repayment schedule themselves. Borrowers who add an additional 1/12 of a full monthly payment to each one of their normal payments each month will end the calendar year having made a total of 13 full payments. It is important to note that some lenders handle extra payments differently. It is important that borrowers consult the terms and conditions of their mortgage before making extra payments to ensure the additional funds are being applied in the way that they want.
The main difference between an informal, consumer-driven plan and a contractually binding early repayment is that the informal plan relies entirely on the individual’s personal financial discipline to be successful. However, it also provides several benefits.
First, if a borrower is making the extra payments themselves then they are still gaining the benefits of early repayment while maintaining the flexibility inherent in a traditional repayment schedule. In the event that unexpected expenses come-up or the borrower is forced to deal with a financial emergency, they can “postpone” the payments until they again enter a period of financial stability. With a traditional bi-weekly mortgage, borrowers are locked into paying more regardless of their financial status.
At CMA, our Mortgage Advisors are always available to provide applicants and current customers with access to industry leading advice and mortgage related services. We succeed by offering highly competitive loan terms and providing outstanding customer service.
At California Mortgage Advisors Inc., we genuinely believe that we offer our customers the best mortgages in the industry. We have offered a variety of loans since 1993, which means our Mortgage Advisors have successfully matched tens of thousands of borrowers with loans tailored to meet their needs and unique financial situations. Our Mortgage Advisors are available at (800) 927-6560 to answer your questions or click here to apply online.