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Avoiding The Bi-Weekly Payment Scam
Author: Dave Czach
Avoiding The Bi-Weekly Payment Scam
by
Dave Czach
On the surface, the Bi-Weekly Mortgage Reduction Plan seems great. You divide your mortgage payment in half and pay it every two weeks into a large escrow account. The escrow service company then pays your payment every month on your behalf. The amount they pay is equal to your regular payment plus 1/12 of one payment. The extra 1/12 is applied directly towards your principle balance - not interest. Thus, shaving approximately 9.1 years off a 30 year mortgage loan and saving you tens of thousands of dollars in interest.
Now here's the flaws with this system. First, the escrow company usually charges a set up fee in the neighborhood of $200 or more. Second, the escrow company charges you around 2% of your new payment amount every month. Third, you sign a contract to authorize the escrow company to make your loan payments on your behalf. Fourth, your credit rating is now in the hands of strangers. The good news is you can do this on your own without fees or sleepless nights.
There are two methods for do-it-yourself mortgage reduction. First, simply send two checks each month to pay your loan. One check for the full regular amount. One check for 1/12 of your regular payment with the memo section highlighted and stating "Apply directly to principle reduction only."
At the beginning of each quarter, send a certified letter to your lender requesting your account balance history over the past three months. Double-check to see if your 1/12 payment was applied directly to your principle. If not, send a certified letter to the manager with copies of your checks to settle the dispute.
The second method of self mortgage reduction is the mysterious 13th payment. Establish a separate savings account to be used only for your mortgage reduction program. Each month deposit 1/12 of your regular monthly mortgage payment in the account - use payroll deduction if necessary. At the end of the year, you have accumulated the 13th payment (1/12 payment per month x 12 months). In December, you send two checks to your mortgage company. One for the regular payment and one for the 13th payment. Be sure to write and highlight the memo section on your 13th payment check with "Apply directly to principle reduction only." Again follow-up with a certified letter within 3 months to verify the 13th payment went straight to principle, not interest.
In conclusion, the Bi-Weekly Mortgage Reduction Plan is great and makes sense. However, since most lenders do not accept bi-weekly payments, clever entrepreneurs created the massive bi-weekly escrow system. But this method can be costly and leave your perfect credit rating in the hands of an independent, non-interested, 3rd party. If you can sleep at night with that decision, great. If not, do it yourself.
© 2003 SonicPoint.com.
About the Author
Editor's Note: Dave Czach has 12 years experience in the mortgage business and a Bachelor's Degree in Real Estate. He can be reached at dave@czach.com.
This article may be reprinted without compensation provided there are no changes whatsoever to the article, the copyright notice and the complete Editor's Note. Any reprinting or duplication without these conditions is copyright infringement.
Article Keywords:
Home Loans
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As you may know, I have a very deep passion for real estate and mortgages. In
fact, this website is a true labor of love for me.
As publisher, one my many duties is to review the many books, programs
and courses about real estate and mortgages that are on the market today. I’ll
be honest with you. Most of them are garbage. (Although
I do strongly recommend the programs in the “Must Have” box
above).
But, let me tell you, when I came upon the following headline, I new
I found a winner…
“Learn How To Quickly Build At Least $40,000
Worth Of Home Equity And Pay Your Mortgage Off In 10 Years Or Less”
-Without Making Biweekly Mortgage Payments-Or Changing Your Current Mortgage.
Now, the reason I knew it was a winner was because of the name behind
the headline. Craig Romero. Many consider Craig to be one
of the true geniuses in our field. I have a lot of respect for
him, and I
urge you to drop what you are doing right now and click the link below... |
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