Author: Dave Czach

Article:
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.

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