Disadvantages of a Bi-Weekly Mortgage

A bi-weekly mortgage allows borrowers to pay half of their mortgage payment every two weeks, rather than a full payment once per month. While there are benefits with this payment plan, there are also a few disadvantages. Some of the disadvantages include: high enrollment fees and no increase in credit score.

Enrollment fees

Depending on the mortgage lender and their specific policies, there may be high enrollment fees. Many of the most well known lenders charge enrollment fees. The fee can range anywhere from $200 to $400 to enroll.

In addition to enrollment fees, there may also be transaction fees and maintenance fees. Many top lenders charge anywhere from $4 to $9 per month in fees. While borrowers are paying their mortgage off anywhere from 6 to 8 years earlier this way, they are also paying higher fees than if they paid it through the traditional method.

Credit rating not impacted

Though the automatic bank draft will help ensure the bi-weekly mortgage payments will make it on time, it will do nothing to improve your credit rating. Credit agencies work on a 30 day basis, reporting payments in 30, 60, 90, and 120 day increments. Reports are updated at least once every two months with the agencies.

While the bi-weekly payments help make borrowers make one extra payment per year, it is something borrowers can do on their own, without having to deal with the fees and hassles.

For those who get paid every two weeks, it is easy to save half of the payment each paycheck. There are two months of the year where a third paycheck is issued, and during those two months, saving half the payment as usual will produce the additional payment as the program through the mortgage lender would.

The same applies for those who are paid once a week, because there are months where five paychecks will be received. If a borrower saves 25% of the mortgage payment from each weekly check and mails the payment in monthly, he or she accomplishes the same thing as the bi-weekly program.

Before deciding whether or not to enroll in a bi-weekly mortgage program it is important to consider how long you'll live in the home. If you will not live in the home at least five or six years, the benefit of the early pay off will not be worth it. Check with the lender to ensure there is no early pay off penalties or fees before agreeing to this method of payment.