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There are two important purposes for this article. The first purpose of this article is to give consumers that are considering purchasing a biweekly payment plan service the necessary information to make an informed decision. Second, this article serves the purpose of informing consumers who are currently enrolled in such a program that they may have a legal claim against the company that enrolled them in their biweekly payment plan.
Many people are asking whether biweekly payment plans are a valuable service or a ripoff/scam. On this page we hope to fully explain how biweekly mortgage payment plans work, shedding light on how these payment plans are more akin to a scam than a service. A Biweekly mortgage payment plan is a mortgage loan payment plan where the borrower makes payments toward his/her principal and interest every two weeks instead of once monthly. The Biweekly payment is exactly one half of the amount a monthly payment would be. Those companies offering the services of a Biweekly Mortgage payment plan usually tout the plan's substantial benefits in interest savings, but these plans can be and often are illegal, misleading and deceptive-- both in the value of the service rendered and in the amounts you are getting charged.
The Value: What are you actually receiving from these companies when you pay them all of these fees to enroll in their Biweekly Payment Plan?
Most consumers believe that what they are receiving is a plan where the payments are made towards their mortgage biweekly. The name of the plan itself is the "biweekly" payment plan. As such, it would be reasonable for the consumers to expect that their payments are actually made biweekly (i.e. that the company pays the consumer's mortgage every 2 weeks as opposed to once a month-- thus reducing the principal amount and the interest paid for that month). Although this is a logical and reasonable conclusion that is not what actually occurs, no biweekly payment is ever made. The name of the program itself, the "Biweekly Payment Plan" could be categorized as inherently deceptive to most. Nothing in the timing of your payments changes at all. The company or bank that enrolled you in this biweekly payment plan is still only paying your mortgage payment once a month. This raises some serious questions. First, "So what's the difference between this program and making the monthly payment myself?" and second, "Why would I pay someone else to do what I have been and can easily continue to do myself?". These are great questions and each are answered in turn below.
- "So what's the difference between this program and making the monthly payment myself?"
The only value given in the biweekly payment program is that you end up making one extra "full" payment per year on your mortgage. In a biweekly mortgage payment plan the lender and/or 3rd party processors place the first half of your monthly payment into holding until the second half of your monthly payment is made. It is not until after you have made the second half of your monthly payment that the third party processor submits the payment on your mortgage. This system allows the bank to minimize profitability losses from the program--for if the payments were actually made biweekly (every two weeks), the banks would stand to lose enormous amounts of money on the interest that would have accrued should the payment have been deferred until the end of the month. The Biweekly Mortgage payment program would be much more real, lucrative, and less misleading if interest and principal was applied to the account on a biweekly basis.
Here is how the plan works. There are 52 weeks in a year. Since you are paying half of your mortgage biweekly (i.e. every two weeks), you will make 26 half payments throughout the course of a year. 26 half payments are the equivalent of 13 full payments. Maintaining your existing monthly payment plan under your mortgage and making one extra payment at the end of the year will result in the same savings as a Biweekly Mortgage payment plan. Remember that all of the half payments you make during any given month go to the third party processor, the actual payment to your mortgage company does not occur until the third party processor receives the second half payment for that month, and then the third party processor sends the first half payment and the second half payment-- a full payment-- to your mortgage company. It is only because you have made 26 half payments, the equivalent of 13 full payments, that you have one extra full payment-- the "13th payment"-- that will be made by the third party processor to the mortgage company at the end of the year. That one extra payment (the "13th payment") the consumer has made each year is what actually results in savings, not because there has been any "early" payment made every two weeks.
- "Why would I pay someone else to do what I have been and can easily continue to do myself?"
There is no logical, economic sense for someone to pay a company hundreds of dollars to do something that they could easily do themselves. If this service is of no value, why would a consumer purchase it? Therein lies the deceit, because a consumer would have to be deceived in order to make such a fundamentally poor choice. Both the deceit and allure of the biweekly payment program is that it ultimately does save the consumer thousands of dollars at the end of a 15 or 30 year mortgage. This is due to the one extra payment, the "13th payment," made at the end of each year. As such, the consumer is willing to pay the hundreds of dollars in upfront fees and transaction fees because, in the end, the savings resulting from the 13th payment outweigh the costs of the banks or third party processors' fees. The program could thus be described as deceptive as the consumer does not actually receive anything of value. The savings that the consumer receives are not attributable to the actual "biweekly payment", they are attributable to the one extra payment that is collected as a result of there being 52 weeks in a year. The consumer is actually losing money by paying all of the fees associated with the biweekly mortgage payment plan. [IMPORTANT] Most consumers probably attribute these savings to the "biweekly" nature of the payment plan. However as previously discussed, there is no biweekly payment actually being made to your mortgage company and you could achieve the exact same savings by simply making that "13th payment" on your own, thus saving you the hundreds of dollars in fees that the third party processor or bank would charge you.
The Amounts Charged: Did the company charge upfront fees in amounts that are illegal by law?
Some mortgage companies and third party processors charge large amounts in service fees to convert a mortgage to a Biweekly payment plan, and this may constitute an unfair or deceptive business practice on behalf of the mortgage company and/or third party processor. In fact, any upfront fee in excess of $75.00 is deemed illegal under Ohio law. Many of the companies that offer this Biweekly Mortgage Payment Plan charge hundreds of dollars in upfront fees and transaction fees that could amount to thousands of dollars over the term of your mortgage. If the fees that you have been charged exceed $75.00, please contact the office now as you may have a legal claim.