Bi-Weekly Payment Plan is it a Valuable Financial Tool or Scam?

Before I answer that question, it is useful to know how a Bi-Weekly Payment Plan (BWPP) works. The program concept is contained in the difference between “Every-other-week” and “Twice-a-month”. Half payments made every other week add up to 13 full payments (26 payments / 2). If you paid your mortgage twice a month it would be a traditional 12 full payments (24 payments / 2).

The BWPP misconception is that the principle is applied with each half payment; It isn’t. And it can’t.

The dirty little secret is that your payments are paid early and the servicer is sitting on all those half payments for a half month earning a very small amount of interest on a very lot of consumers.

Boiling it down – the BWPP now becomes a very basic tool for overpaying your mortgage. Overpaying your mortgage is a complicated irreversible action that should NOT be done to the detriment of rising credit card balances, ballooning HELOCs, underfunded retirement planning, or educational goals. Seek competent guidance on this topic through your financial advisor or accountant (let me know if you need a recommendation for one!)

Leading up to my answer please consider the following: 

BWPP does NOT magically re-amortize your mortgage every fortnight. 

It does not and CANNOT alter the terms of your mortgage contract. 

Now consider these conditions of BWPP which could include:

  • A setup fee (in the hundreds of dollars)
  • Recurring transaction fees (cumulatively in the thousands of dollars)
  • 3rd party servicer will need access to your check-book (account numbers and authorization to draft)
  • Payments will inevitably draft (now AHEAD of your typical schedule) on esoteric dates like the 5th of May, Friday the 13th, Super Bowl Sunday, and Leap Day.
  • Consider the “Blue Moon Effect”: If your first payment is drafted on the 1st, 2nd, or 3rd of the month it is very likely that you will have 3 mortgage payments drafted that month.

So is it a scam? 

If a product or service is designed solely for the benefit of the vendor and nothing is done to dispel “perceived benefits” which are false (re-applying principal every two weeks) and the ENTIRE service can be performed by the consumer free of charge, is that a scam? I’ll let you answer that question.