There’s a — it’s a pretty cool concept — for a lot of people they get paid 26 times a year, bi-weekly.
So, if you get paid every two weeks, you get 26 paychecks a year instead of 24. Somebody figured out, if I take my mortgage payment and I cut in half, and then I mail it in 26 times a year, basically every time you get paid, you send in half of your mortgage payment. And so, when the warning I will give you is to get a payment ahead first, because sometimes the timing doesn’t come up right and you can actually go late, and be charged late fees.
Setting Up Biweekly Payments
Because the whole payment isn’t there in time. So my recommendation is one, you can do this yourself. Set it up with your bank to where you’re going to send in half the payment every time you get paid, which if you’re biweekly is 26 times a year, but make an extra payment first so you’re one payment ahead. This way you don’t ever get late fees. Because sometimes the timing can get hinky.
Well, these companies figured out that they could sell the service of helping you do biweekly payments. So instead of you doing it yourself, you sign up with this company and you pay them fees. Then they will draft your bank account every two weeks for you, for this fee, which is pretty expensive, too.
Benefits of Biweekly Payments
The CFPB has sued one of these companies, claiming that the fees offset the savings. So the idea is, if you make an extra payment a year on your mortgage, if you make 26 half payments a year, that’s 13 full payments instead of 12.
By making one extra payment a year, you can cut a significant amount of time off the back your mortgage, because you’re paying the balance down sooner. Now more of your money is going to principal, and less of it is going to interest. This creates a snowball effect and it pays down faster and faster.
How to Execute Biweekly Payments
People figured this out and biweekly got popular. Then these companies popped up who will do this for you. Well let me tell you, it’s really easy to pay a bill, especially today. I would say every bank out there has some form of online payments, even to other banks, right?
Here’s my quick 45 second rundown on how to do a bi-weekly payment, and I’m not going to charge you a dime for it.
Allegedly this company, the fees they were charging ate up almost all of the savings over the first like seven or eight years. In the end, some people did save money, but most of them did not. They would drop out of the program because all of a sudden they realize, well I’ve saved $3,000, but I’ve paid $3,000 in fees. Then the fact that people were even paying $3,000, $4,000, $5,000 in fees to have someone set them up on biweekly payments is insane.
Step One – Make an extra payment
So here’s what I want you to do. One, like I said you have to be ready to make an extra payment. So if you think this is a good idea, I would go ahead and save up, and when you’re ready to make your first extra payment, mail it in.
Let’s say I made my May mortgage payment on May 1st. And now I’m going to make a second mortgage payment now on May 20th. So now instead of being due on June 1st, my next payment is not due until July 1st, right? So I’ve got a 30-day cushion.
That’s step one. I’m going to make one extra payment now. So you’ve got to save up a little money, right? We’re going to be proactive. I’m going to make one extra payment now. Then I’m going to go into my online banking and I’m going to set up Auto Pay. You can tell what bank you want them to pay, and when you want them to pay it.
I’m going to go through I’m going say, “all right, we’re going to do this every two weeks.” And, I take my mortgage payment and I divide it by two. I type that number in, and then I hit save, and I walk away. Now every time my paycheck gets put in on direct deposit, they’re going to mail half of the payment, half of my mortgage payment off to the mortgage company. I’ll be making one extra payment a year for the rest of my life, as long as I live this in place. It didn’t cost me anything
Step Two- Make a payment every time you receive a paycheck
But, this company was charging. Here’s the part that a lot of people don’t know, and this is the part that bothers me. These companies — and I don’t know if this particular one does because I’ve never been approached by them or had any dealings with them. But, a lot of these biweekly companies approach us, as mortgage companies, or approach mortgage loan officers, and say, hey, we’ll pay you a commission to sign people up for our program.
So now, the loan officer says, well, I could give them the Robert Palmer’s 45 second free tutorial on how to make biweekly payments, or I can sign them up with biweeklyinternational.com and make couple hundred bucks. And this is where the greed comes in. This is the part the drives me crazy. Instead of doing what’s right for the customer, which is, hey, you don’t need to pay anybody to make biweekly payments.
Just mail your check in every two weeks. I mean, even if you don’t like online banking, just, let’s do sit down and write out 26 checks. How long would that take?
We’re going to sit down, we’re going to write out our 26 checks. Now, you are going to pay one extra stamp, right? If you have to mail your payment.
Come by, say hi, we’ll pour you a cup of coffee. But if not, you could have to pay for an extra 13, 14 stamps a year.I guess that’s a couple bucks,
Again, but with online, it’s so easy these days. Everybody makes it so easy. I really don’t see a purpose for these companies. Now, they don’t want to hear me say that. I don’t really care what they want to hear. I’m telling you, there’s no purpose for this. Do not pay anyone fees in order to pay your mortgage off quicker!
Most people budget based on their paycheck, so if you do get paid 26 times a year instead of 24 because you’re biweekly. It’s a cool little kind of — I’ll call it a life hack. It’s a cool little hack where you could say, you know what, I’m going to take — my mortgage payments, a thousand dollars. I’m going to take $500 out of every paycheck, and I’m going to do that 26 times a year instead of 24, which ends up being 13 payments, and yes you will pay your mortgage off faster. But ,you don’t have to have anyone help you do that.
Avoiding the Late Fee
See, people will call us and say oh, does RP Funding offer biweekly mortgage? But no, we don’t have to. Anybody can pay. You could pay whenever you want, as long as it’s before the payment date, right? You could pay whenever you want as long as it’s early. That’s where I’m telling you, make that extra payment first, get a month ahead, because you don’t want to get hit with a late fee.
What will happen is, if it’s your second — so, let’s say that you know that the first payday for you is on the 2nd, and the second payday would be 14 days later on the 16th. Well if you make the second half of your payment on the 16th, it’s after the 15th. So you’d be paying a late fee. Because you would not have paid the entire thing by the 15th, which is the requirement. This is why we make one extra payment upfront. But that’s it. tThat one extra payment you make is your money because it’s going to your balance and your interest. So that’s my advice.
Step one, make extra payments. Step two, make half payments every time you get paid. Step three, pay off mortgage faster. Three steps!
Pretty darn easy.