By the Division of Banks

For Immediate Release

Contact: Thomas Curry or David Cotney

December 13, 2001

Division of Banks (617) 956-1510

CONSUMER ALERT

BI-WEEKLY MORTGAGE PAYMENT PROGRAMS

The state Office of Consumer Affairs and the Division of Banks are warning consumers about bi-weekly mortgage payment programs.

Many people have been able to take advantage of falling mortgage rates by refinancing their mortgages and thereby lowering their monthly mortgage payment. If you have not been able or inclined to refinance or are just looking to save a significant amount of money, you may have noticed advertisements or been sent offers to take advantage of a "bi-weekly mortgage program."

The Consumer Affairs Office and Division of Banks urge consumers to be aware of the following after receiving consumer complaints and a protest from the Massachusetts Bankers Association:

  • Many of these advertisements or offers are unregulated and your "deposit" is uninsured: Would you hand your mortgage payment to a stranger on the street and trust them to make the payment when due? These companies are not licensed or registered and, therefore, are not routinely monitored by any governmental body to ensure that the company is legitimate and your money is safe.
  • Many of these companies have no relationship with your lender: Frequently the advertisement or solicitation will imply that the company that is going to take your money is in some way related to your bank or mortgage company. They are not. If your lender is specifically mentioned in correspondence you receive in the mail, it is only because that information is public record.
  • Many of these companies charge a fee and provide little or no service: Because these companies cannot change your contract with your lender, they can do nothing that you cannot do for yourself with the one exception of disappearing with your hard earned money while charging you a fee.

Consumer Affairs Director Jennifer Davis Carey says, "Before you respond to an unsolicited offer or an advertisement tucked away in the "personals" section, you should be aware of the significant risks. For most people, the monthly mortgage payment is their largest obligation."

Banking Commissioner Thomas Curry says, "Our advice for consumers is simple. Why pay someone, who may or may not be reputable, to do something you easily can do for your self."

Saving tens of thousands of dollars over the life of your mortgage by sending more money, more frequently is no mystery. Our grandparents knew that sending a little extra towards the house payment would speed up the mortgage burning party.

These "bi-weekly mortgage programs" can provide specific calculations that are ultimately of little value and sell the idea that participation will force you into being more disciplined. They don't highlight that this discipline comes at a real cost of the fees that they are going to charge you and the possibility that you could lose your payment as well.

To take advantage of major savings at no risk and no extra expense, here are directions, free of charge:

  • Contact your mortgage lender: Ask your lender how you can accomplish a savings through paying more frequently and/or sending additional money to be applied to principal. Whatever plan you choose, you should always first verify with the lender how and where to send the payment. If you choose, your lender most likely will be willing and able to contractually change this aspect of your mortgage loan. There may be a fee, but this fee, in some cases, is limited by law in Massachusetts and will always be low in relationship to the savings you will accomplish. A contractual change will provide the discipline that many borrowers need; however, it also lessens the flexibility you may need as you are now contractually obligated to send more money each year.
  • Create a "mortgage club" account: To best accomplish the effects of a bi-weekly mortgage (there are 26 bi-weekly periods in one year, which translates to 13 months) without changing the contract, you would want to send one extra principal and interest monthly payment at the beginning of each year. Deposit (preferably directly deposit from your paycheck) one twelfth of your principal and interest payment into an account each month; at the end of one year, when you have a full monthly payment, send it to your lender. The more you send, the more you save. Remember to speak with your lender to find out if there are any special directions for sending extra principal payments.
  • Generate a new payment plan: If you are unable to send a full extra monthly payment at one time, increase the monthly payment you are sending. To achieve the greatest benefit, the increase should be at least 1/12 th of a normal monthly principal and interest payment. More is better when you can; less is still good; if you have to skip one month of extra contributions because of other obligations, that is fine because you have maintained the control.

If you need additional guidance or assistance, your lender should be willing and able to help you. If you have other mortgage or banking questions, always feel free to contact the Massachusetts Division of Banks' Consumer Hotline at 1-800-495-BANK (2265).