One of the popular ways to save money on mortgages is to use what is known as the biweekly mortgage payment plan. With the biweekly mortgage payment plan the borrower makes payments on his mortgage every two weeks, instead of once a month. The biweekly payment is one-half of the monthly payment. So, if you converted from a monthly plan to the biweekly plan and you had been paying $2,000 a month for your principal and interest, you would now be paying $1,000 every two weeks. There is no doubt that this will save you money. By using the biweekly mortgage payment plan, you'll pay off your loan much earlier than you would have if you continued to pay monthly. Typically, a biweekly plan will pay your mortgage, in full, 7 to 10 years earlier, on a 30-year mortgage, than a monthly plan will.
At first glance, it looks like the biweekly plan is magical. In reality, however, there is nothing magical about a biweekly mortgage payment plan. The reason a borrower is able to pay off his mortgage sooner with a biweekly plan, is because he is, actually, making additional principal payments. In the example above, where a $1,000 payment is made every two weeks, $26,000 is being paid toward the mortgage every year. This is because, quite simply, there are 26 two-week periods in a 52-week year. With the regular $2,000 per month plan, $24,000 is being paid per year.
Now, let's run the numbers on this $2,000 a month mortgage and see what happens when we convert to a biweekly payment plan. With a thirty-year mortgage at 7.5 percent interest, our borrowed amount is $286,035.25. With a borrowed amount of $286,035.25 at an interest rate of 7.5 percent and a $2,000 a month payment, you would save $114,697.00 by converting this mortgage to a biweekly payment plan. This seems astounding! Doesn't it?
Here's what makes it less astounding. Using the same numbers with a monthly plan, except using a monthly payment of $2,166.67 instead of $2,000, the saved amount is $113,682.90. Not a whole lot less astounding than the biweekly plan, is it? Why do we use a monthly payment of $2,166.67 in place of $2,000? As we noted before; when we pay a biweekly mortgage plan, we end up making one extra monthly payment per year. In our example, $2,000 is the amount of the extra yearly payment. $2,000 divided by 12 means we would be paying $166.67 extra monthly after we converted to a biweekly plan. Paying $166.67 extra each month, at 7.5% with a total borrowed amount of $286,035.25, ends up saving us almost as much with the monthly plan as we would save with the biweekly plan!
The reason the biweekly plan saves a little more than $1,000 more than the "pay a little extra each month" plan is that a $1,000 payment is made two weeks sooner with the biweekly plan. We could save just as much by doing this with our own plan, or, try this: Take the $1,000 first biweekly payment and divide it by 360 payments (30 years). Now take that $2.78 and add it to the $166.67 extra payment and it changes the monthly payment from $2,166.67 to $2,169.45. With this as the monthly payment and all other entries being the same, this plan will save $115,003.69 over the course of the mortgage; or, a little more than the biweekly plan. You see, the biweekly plan forces the payer to start paying down the interest sooner than a monthly plan because the biweekly plan demands a payment two weeks sooner. To compensate with our own monthly plan, we have to make our first payment two weeks sooner, or split the amount of the first biweekly payment, $1,000 in this case, over the course of 30 years. This makes us pay the same amount into the mortgage in the exact same time as the biweekly plan does.
Here's what's astounding to me! When you convert to a biweekly plan, leading lending institutions charge you between $400 and $1,300 and some lesser-known biweekly conversion companies charge you a monthly fee that can amount to $10,000 and up when totaled! As you've just seen, you don't need to pay these excessive fees because you can get the same effect of a biweekly mortgage plan by simply keeping the mortgage you have and paying a little extra principal each month. Certainly, you can institute this plan without paying any upfront fees!
Also worth noting is; when you commit to a biweekly plan and the extra money becomes too much for you to pay some month, you'll get hit with a late charge for not paying on time. If you institute your own plan, maybe you'll be a little short and not able to pay the extra amount some month, but it won't cost you a $35 to $100 late charge.
So you think my calling biweekly mortgage plans, "a scam", is being a little harsh? I don't think so, in fact, I think they are out and out robbery!
Each mortgage scam contains some type of misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase or insure a loan. Mortgage scam is easily practiced particularly where mortgage industry professionals are involved. The true level of mortgage scam is largely unknown because a significant portion of the mortgage industry is void of any mandatory fraud reporting and in addition, mortgage fraud in the secondary market is often under reported. Based on various industry reports and analysis, mortgage scam is pervasive and growing. Mortgage scam can be basically analyzed as:
* Fraud for Profit - Sometimes referred as "Industry Insider Fraud" and the motive is to falsely inflate the value of the property, issue loans based on fictitious properties or revolve equity. Based on existing approximate reports, eighty percent of all reported mortgage scam losses involve collaboration or collusion by industry insiders
* Fraud for Housing - An illegal action perpetrated solely by the borrower. This type of mortgage scam is done by a borrower who makes misrepresentations regarding his income or employment history to qualify for a large loan. The motive behind this scam is to acquire and maintain ownership of a house under false pretenses
Fraud for Housing can not be compared to the scam done by mortgage scam industry professionals which affect the borrowers. Predatory lending usually is targeted towards senior citizens, lower income and challenged credit borrowers. Mortgage lending representatives force borrowers to pay exhaustive loan settlement fees, sub-prime or higher interest rates, and in some cases, unreasonable service fees. The usual result is the borrower defaulting on his mortgage payment and undergoing foreclosure or forced refinancing. Our focus is to recognize the mortgage scam that could happen to us, the borrower.
MORTGAGE SCAM SCHEMES
False or Stolen Identity - A fake identity may be used on the loan application. The applicant may be involved in an identity theft scheme and use someones personal information without the true person's knowledge.
Inflated Appraisals - An appraiser acts in collusion with a borrower and provides a misleading appraisal report to the lender. This report inaccurately states an inflated property value.
Silent Second Mortgage - Buyer of a property borrows the down payment from the seller through the issuance of a non-disclosed second mortgage. The primary lender believes the borrower has invested his own money in the down payment, when in fact, it is borrowed. The second mortgage may not be recorded to further conceal its status from the primary lender.
Nominee Loans - The identity of the borrower is concealed through the use of a nominee who allows the borrower to use the nominee's name and credit history to apply for a loan.
Equity Skimming - An investor may use a nominee, false income documents, and false credit reports, to obtain a loan in the nominee's name. Subsequent to closing, the nominee signs the property over to the investor in a quit claim deed which relinquishes all rights to the property and provides no guaranty to title. The investor does not make any mortgage payments and rents the property until foreclosure takes place a few months later.
Property Flipping - A property is bought, falsely advertised at a higher value, and then quickly sold. What makes this property illegal is that the appraisal information is fraudulent. The schemes typically involve one or more of the following; fraudulent appraisals, doctored loan documentation and inflated buyers income... Kickbacks to buyers, investors, property and loan brokers, appraisers, title company employees are common in this scheme. A home may be appraised for $100,000 but is actually worth $30,000.
Air Loans - This is a non-existent property loan where there is usually no collateral. A broker invents borrowers and properties, establishes accounts for payments, and maintains custodial accounts for escrows. They may even set up an office with a bank of telephones, each one used as the employer, appraiser, credit agency for verification purposes.
Foreclosure Schemes - Are one of the worst. The loan agents mislead the homeowners into believing that they can save their homes in exchange for a transfer of the deed, usually in the form of a Quit-Claim Deed, and up-front fees. The perpetrator profits from these schemes by re-mortgaging the property or pocketing fees paid by the homeowner without helping to prevent the foreclosure. The victim suffers the loss of the property as well as the up-front fees. Be aware of offers that promise to save homeowners who are at risk of defaulting on loans or whose houses are already in foreclosure. If you are near a foreclosure seek a qualified credit counselor or attorney to assist.
Mortgage Scam per e-Mail - Many of the emails imply that the recipient has already been approved for a loan by making a vague statement such as "we are accepting your mortgage application". Recipients may believe that they are actually being offered a loan. These emails are basically just poorly implemented tricks to get recipients to click on the link provided and fill out a form which in turn will defraud you in one way or another. If enough information is provided, scammers might even be able to steal your identity. A lot of the sites will last only a few days before they are taken down. But new will arise as soon as they are suppressed. Often they consist of just one page containing a form. There is no information about the company offering the service, no privacy policy or a legal document, and no contact options other than the form provided. Often,the form is not secure (https), which is a good indicator that the site is not legitimate. No credible company would expect potential clients to submit information via an unsecured form. Never deal with spammers, regardless of how attractive their offer may seem. If they are unscrupulous enough to send unsolicited email, or allow their affiliates to send unsolicited email, then they have immediately shown themselves to be untrustworthy and you should avoid them at all cost. In general try to avoid the use of online mortgage loans.
Both Ed Lathrop & Thewicker are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Ed Lathrop has sinced written about articles on various topics from Wedding Photography, Mortgage and Adware. Ed Lathrop is a successful Real Estate investor. He has developed EzCalculator, a Mortgage Calculator that calculates anything to do with mortgages, shows you how to pay off credit card debt and much more. EzCalculator includes a Biweekly Mortgage Calcu. Ed Lathrop's top article generates over 14800 views. to your Favourites.