First, let me explain the concept of a bi-weekly mortgage and how it works.   Let’s say that you’ve got a $100,000 mortgage at 6% and your minimum payment is $599.55 (let’s round it to $600 for example purposes.)

The way a bi-weekly mortgage works is that you would pay $300 every two weeks (a half of a payment) and that means that over the course of 12 months, you’d make 26 half payments (or 13 full payments.)   That means that over the life of the loan, you’ll pay the loan off 5.5 years faster.   That will save you $24,700 in interest.

So what’s not to like about that?  Saving $24,700 is a very good thing!

But there are a couple of things I don’t like about a bi-weekly mortgage and then I’ll show you what I call “The Better Way:”

• With a bi-weekly payment program, the half payment comes out of your account every two weeks, but it doesn’t get applied to your mortgage until the end of the month.   So let’s say that your two half payments are scheduled to come out on the 10th and the 24th of the month.    Your money ends up sitting in a different account (controlled by your mortgage payment servicer) and then applied to the loan at month end.    Every single “bi-weekly” plan that I’ve ever seen operates that way.   How do I know?  I’ve personally investigated some and I know that the mortgage servicing computer platforms are set up so that they have to recognize a complete payment every month otherwise it gets flagged as delinquent.   Don’t believe me, ask your bank if you can bring them 1/3 of your mortgage payment in cash every week for three weeks.    See what they say.    It’s a personal thing, but I don’t like having my money sitting in someone else’s account.
• Fees – You will probably find people who will disagree with me, and they are probably hidden quite well, but there are fees involved.    Typically, there’s an up front set up fee and a small monthly fee.

The Better Way:

The principal behind the bi-weekly is good, but I recommend that you do it one of two ways instead:

• Take your payment, divide it by 12 and add that much extra on to your payment every month.    You experience the same savings without the fees and your money stays in your account.
• If your income is “variable” (bonuses, etc.) commit to making 1 house payment out of your bonuses every time you get a bonus.  I have a customer who got 20% of his income in a December 31 bonus.   Every year, he made three house payments on December 31. 

Is the bi-weekly plan better than taking 30 years to pay off the mortgage?   Absolutely.   Is there a better way?    I believe there is.

Hope that helps enlighten you on my feelings on the matter……..

Related Posts

• October 19, 2009 -- Why I don’t like a Bi-Weekly Mortgage Payment Plan

We’ve been saying on here that there is a seismic shift going on in consumer thinking and spending.  What he has to say reaffirms that view.

Well worth the read, but don’t read it late at night…….

……The Long Road Ahead

SINCE LAST SPRING, when fears of economic apocalypse began to ebb, we’ve been treated to an alphabet soup of predictions about the recovery. Various economists have suggested that it might look like a V (a strong and rapid rebound), a U (slower), a W (reflecting the possibility of a double-dip recession), or, most alarming, an L (no recovery in demand or jobs for years: a lost decade). This summer, with all the good letters already taken, the former labor secretary Robert Reich wrote on his blog that the recovery might actually be shaped like an X (the imagery is elusive, but Reich’s argument was that there can be no recovery until we find an entirely new model of economic growth).

No one knows what shape the recovery will take. The economy grew at an annual rate of 2.2 percent in the third quarter of last year, the first increase since the second quarter of 2008. If economic growth continues to pick up, substantial job growth will eventually follow. But there are many reasons to doubt the durability of the economic turnaround, and the speed with which jobs will return……

Read the whole article here……

Related Posts

• December 4, 2009 -- More on the Jobs Numbers
• September 29, 2009 -- Jobs, Jobs, Jobs….
• June 4, 2009 -- We’ve often said that jobs are the key to the recovery….
• March 30, 2009 -- This week is going to be a big one…..
• March 16, 2010 -- The Fed – Translated….

A few thoughts of mine below the chart……

Okay, a couple of thoughts:

• One can argue all you want about statistical noise, about how the housing crisis is getting better, but when you look at a chart like this, it clearly shows that the three “F”s (Fannie, Freddie and FHA) are seeing growing inventories of real estate owned.
• When you combine that with the chart from JP Morgan which shows serious delinquencies rising, it doesn’t paint a pretty picture.

Expect continuing losses at the three “F” and continued pressure on home prices.   More in the harder hit areas, but on a national basis as well, I’m afraid.

Related Posts

• March 10, 2010 -- Please tell me my numbers are wrong….
• March 10, 2010 -- Another Example of why Fannie and Freddie don’t like condos……
• December 5, 2009 -- 4 F’s – Fannie, Freddie, FHA and FDIC
• September 2, 2009 -- Mortgage Interest Deductions – The Problem with Fannie and Freddie!
• August 24, 2009 -- The question that isn’t addressed…..

Related Posts

• December 17, 2009 -- The President and the Bankers
• October 17, 2009 -- Party Like It’s 1999
• September 12, 2009 -- Haven’t we learned anything?
• August 24, 2009 -- Good News/Bad News
• July 30, 2009 -- Home Crisis Investigation

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

2) In January, the FOMC “hinted” at buying additional securities if needed.    That’s now toned down significantly.

So what does it all mean for the mortgage world?  A couple of thoughts:

• The largest buyer of mortgage backed securities is leaving the market in 15 days.   (And they really really mean it this time!)  That’s not going to be without an impact on the mortgage rate markets.    According to the analysts that I’ve read and heard, the predictions range from .25% in the first 30 days to a gradual increase of 1% or more over the next 18 to 24 months.
• It shows an analysis of the economy that is mixed.   There are parts that have improved since January but parts that haven’t.

We aren’t out of the woods yet…….

Related Posts

• March 18, 2010 -- It’s Different This Time…..
• March 15, 2010 -- Known Unknowns – Huh?
• December 31, 2009 -- Munchin’ on the Numbers
• December 30, 2009 -- Well, of course they do….
• December 30, 2009 -- Munchin’ on the Numbers – by Max Whitmore

Related Posts

• October 19, 2009 -- 2.7 million? Yeah, that’s not going to leave a mark…..
• October 12, 2009 -- Foreclosures are moving up…..
• September 19, 2009 -- Unemployment Numbers – August 2009
• March 16, 2009 -- FICO – The Worst is Yet To Come

I got this chart from my friend, Paul Jackson, over at Housing Wire.

A couple of points that stand out on the graph:

• The number of 150+ day delinquencies is up substantially, like by 400%?
• The rest of the categories are up but not nearly as high.
• That says to me that we’re seeing a transfer of the pipeline.   The same amounts are going from 30 to 60 to 90 days delinquent at a time, but the “catch all” of the seriously delinquent loans is growing.  That’s not a trend that should make anyone happy.
• This says that if the current trend continues, we’ve got a big shadow inventory coming to the market.

What’s that going to do to the market?

• Most likely put downward pressure on house prices
• Most likely put increased pressure on mortgage backed securities which will lead to higher costs and tighter guidelines.
• Most likely lead to increased government intervention trying to prop the housing market higher than it should be.

It will be interesting to see……

Related Posts

• December 30, 2009 -- Are Houses Finally “Cheap Enough?”
• October 24, 2009 -- Why this isn’t over – a picture is worth 1000 words….
• October 3, 2009 -- 1 out of 5? Wow!
• June 27, 2009 -- Why Freddie and Fannie won’t be loosening guidelines any time soon…..
• April 27, 2009 -- Housing Prices Fall Until 2010?

NEW UNDERWRITING UPDATES

• All borrowers’ birth certificates will be required with pictures taken in the hospital with medical staff. Birth certificate with a live home delivery will not be eligible for first time home buyers.
• Marriage certificate with bridal dress will be required if both husband and wife are required to qualify for the loan.
• GFE will not require signature, but will require blood sampling from a recognized institution within three days of application.
• DNA test will be performed at closing to avoid any non-arms length transactions. Loan funding will be contingent upon satisfactory receipt of DNA results.
• Verification of deposit will be acceptable only if Bank representative is present at the closing.
• Copy of Pay stubs and W2 will only be acceptable through IRS and only with a wax-sealed envelope mailed directly to the lender.
• Seven witnesses from the neighborhood will be required as proof of primary residence in case borrower owns more than 1 property.
• All appraisers will be required to use masks and ear plugs at the time of inspection to avoid any personal influence by the borrower or broker for the appraised value.
• In order to correctly calculate DTI and true housing ratio a list of grocery items, monthly usage and brand names will be required with receipts and projected 12 month consumption chart.
• Closing will not occur without loan officer presence at settlement and loan officer picture will be taken at the closing in a mug shot format with loan number. Picture should meet standard guideline of 2 X 2 inch in color format with one facing and one side view.
• Loan officer picture will be attached to the Deed and note and will be made available for general public and security agencies in case borrower defaults on the loan.

Technorati Tags: Mortgage Guidelines

You know, 20 years ago, we didn't need Straight Talk in the mortgage world.   Everyone did the right thing and everything moved along......

Now we do.   Would you like to work with a lender who will tell it to you straight?    Would you like to have someone looking out for what's best for you?

Would you like to work with a lender who has to blog under a pen name - because their bank doesn't like what they are saying?

If so, call us at 330-536-3623 or send an e-mail to info@straighttalkaboutmortgages.com and we'll have one of our team of lenders get back to you, typically within 4 hours during normal week days.

Kenny H.

Random Posts

• October 23, 2008 -- The Verdict is in – a Guest Post
• July 31, 2008 -- Housing Bill: Change to Home Sale Tax Exclusion Rule
• March 30, 2009 -- 1st Quarter GDP
• February 24, 2009 -- Morning Market Update
• August 22, 2009 -- Mortgage Market Week in Review

There is no direct link between mortgage rates and what the Fed controls.

Technorati Tags: Mortgage Rates, Fed Funds Rate, FOMC

You know, 20 years ago, we didn't need Straight Talk in the mortgage world.   Everyone did the right thing and everything moved along......

Now we do.   Would you like to work with a lender who will tell it to you straight?    Would you like to have someone looking out for what's best for you?

Would you like to work with a lender who has to blog under a pen name - because their bank doesn't like what they are saying?

If so, call us at 330-536-3623 or send an e-mail to info@straighttalkaboutmortgages.com and we'll have one of our team of lenders get back to you, typically within 4 hours during normal week days.

Kenny H.

Related Posts

• February 17, 2010 -- Predictions on Mortgage Rates – Will the World Come to an End on March 31?
• December 15, 2009 -- Mortgages and the Fed
• December 14, 2009 -- The Week Ahead
• December 8, 2009 -- The Fed – 12 to 18 months……
• November 7, 2009 -- The Fed – What They Watch – and What It Means for Mortgage Rates