Nationwide Biweekly Administration

[BKer]

Hi,

I closed on a mortgage last month and I recently received an offer from Nationwide Biweekly Administration (NBA) to set up a bi-weekly mortgage payment schedule. Just coming out a BK, I have become somewhat suspicious on anything financial.

Does anyone know if the NBA program is legitimate? They claim that paying my mortgage on a bi-weekly schedule can shed 10-12 years off the mortgage and reduce a substantial amount of interest. They also claim that my mortgage company stays the same and that they handle the payments.

Thanks! Jason

[chpxiii]

BKer, stay away.

When I read your post, I was thinking about how I have learned that if you make just one extra monthly payment a year on your mortgage (on your own, not through some other service or company) you will finish your mortgage off by 5 to maybe 10 years. (Not exactly sure of the math.) It's because that extra payment helps towards the principal.

So I decided to do a quick Google search of the company and I found their website. To quote from their "how it works" page:

By just paying half your mortgage payment every two weeks, you end up making 26 half payments a year. That adds up to a full extra payment each year. During the first ten years of a typical mortgage, 85% of your payments are applied to interest. However, on the bi-weekly program, this extra payment is totally applied towards reducing your principal balance.

Yep, that's exactly what I thought. You don't need their "service." If you can manage an extra mortgage payment on your own, do it. Especially if you plan on staying and not selling. Also, do the Google search and on the first page you'll see several links to problems with this company and issues with fraud. The Google search also brings up their website.

Good luck!

[chpxiii]

BKer, i found this article, read it carefully. It says what I just said. ;)

http://www.uexpress.com/scottburns/index.html?uc_full_date=20030729

[BKer]

Hey! Thank you very much for the response and the link! I won't be signing up! Better for me to try and make the extra payment a year instead of going through them.

[Granny]

My mortgage is with Chase and they offered me the exact same program. Call your mortgage company and ask if they have a similar program. Or you could just send in extra principle with every payment. It will make a big difference if you are planning on staying in the house.

[HHM]

Those biweekly offers are legitimate, the reason being is how the interest is calculated.

If you have a conventional loan, a certain percentage of any payment you send is credited toward interest and principal (that percentage changes as the loan ages, early in the life of the loan, most of the payment goes to interest, but some still goes to principal; as the loan ages, a higher percentage goes to principal).

So, lets look at 1 month....in a bi weekly scenario, you make a payment on the 1st and the 15th. Lets keep the math really simply. Lets say you owe $10 principal. And you make a payment on the 1st of $1. Of that one dollar, .20 goes to principal, and .80 goes to interest. Later, on the 15th, you make another $1 payment. However, your principal is now only 9.80. Thus, instead of calculating your interest at $10, they calculate your interest at $9.80, thus, on the 15th, you would pay .784 in interest, and .216 to principal.
If you made only one, $2 payment, you would pay $1.6 to interest and .40 to principal.
Under a biweekly scheme, your net result of two payments is, $1.584 to interest, and .416 to principal.

Overtime, this incremental reduction in principal, can yield huge savings.

[chpxiii]

HHM, The "offer" may be legitimate, however, I find it to be an unnecessary "service." Which is why I suggested to stay away. I would file this under what Dave Ramsey would call a "stupid" tax. Paying someone *else* to withdraw money from my bank account and then rely on them to make a mortgage payment? Not for me. No thanks.

The link I posted goes into why paying extra on the mortgage works.

[frankies_mom]

If your mortgage company does it, it's a good deal. We have Wells Fargo and they used to have a $300 fee to sign up. Now they are offering it for free. So we are going to sign up next month. We figure breaking the 2 payments in half is easier to budget than taking one big hit every month on the checking account and it will be automatically paid so just one less thing to think about. And in this market, the more we can pay down our principle and shave off our interest the better.

[HHM]

HHM, The "offer" may be legitimate, however, I find it to be an unnecessary "service." Which is why I suggested to stay away. I would file this under what Dave Ramsey would call a "stupid" tax. Paying someone *else* to withdraw money from my bank account and then rely on them to make a mortgage payment? Not for me. No thanks.

The link I posted goes into why paying extra on the mortgage works.

True, if this is an external company offering to do this, DON'T DO IT, but if the offer is coming from YOUR BANK or the MORTGAGE SERVICING company who is servicing your note, AND you can afford to do it, AND you are planning on being in the home for several years, AND there is NO fee, it is a good offer.

[MTG_BANKER_OH]

Those biweekly offers are legitimate, the reason being is how the interest is calculated.

If you have a conventional loan, a certain percentage of any payment you send is credited toward interest and principal (that percentage changes as the loan ages, early in the life of the loan, most of the payment goes to interest, but some still goes to principal; as the loan ages, a higher percentage goes to principal).

So, lets look at 1 month....in a bi weekly scenario, you make a payment on the 1st and the 15th. Lets keep the math really simply. Lets say you owe $10 principal. And you make a payment on the 1st of $1. Of that one dollar, .20 goes to principal, and .80 goes to interest. Later, on the 15th, you make another $1 payment. However, your principal is now only 9.80. Thus, instead of calculating your interest at $10, they calculate your interest at $9.80, thus, on the 15th, you would pay .784 in interest, and .216 to principal.
If you made only one, $2 payment, you would pay $1.6 to interest and .40 to principal.
Under a biweekly scheme, your net result of two payments is, $1.584 to interest, and .416 to principal.

Overtime, this incremental reduction in principal, can yield huge savings.

This is true in theory but mortgage companies will not take partial payments the biweekly company holds your payment until you have one payment to send it in. I get solicitations all of the time to sell these to people but I tell them it is not worth it. They want to charge $495 to the borrower and they pay me $400 of that. I disagree with this and I have never sold one to someone when they can do the same thing for free. The only way this would be worth it is if your lender does not offer it and you do not want the trouble of sending in extra payments. If you just abide by the biweekely payment and do not pay any extra your mortgage will pay off in around 21-22 years.

[parsoc48]

I've used Nationwide Biweekly twice and was glad I did; the fee was $200 but it's lifetime, you can withdraw and go back. They were efficient and with good customer service. It's true you can do the same thing yourself if you are organized and disciplined...I have been neither! I had to withdraw due to attny's advice about not having any automatic checking withdrawals during BK, but have a plan for continuing the bi-weekly withdrawals myself into a 2nd checking account, then paying the mortgage as usual. t actually helped me plan on that payment every payday...plan on it not being there, that is!