Today I’m writing with a warning for anyone who has a mortgage. There are third-party companies that may target you with advertisements. These ads will promise to reduce the term of your mortgage by 6 to 10 years by setting up a bi-weekly payment program… for a fee.
Before I go any further, let me get one thing straight. There’s nothing wrong with paying your mortgage bi-weekly. It’s something I took advantage of in order to pay off previous my mortgage early. However, I set up the bi-weekly payments with my mortgage company, NOT a third-party company. I still shaved YEARS OFF MY MORTGAGE, just like these solicitations promise. The only difference is that my plan cost me ABSOLUTELY NOTHING.
Now, there may be cases when even your mortgage company will charge a prepayment fee. It’s never happened to me, but that’s why it’s good to ask about this BEFORE you take out a mortgage. If you’re unsure, consult your closing documents, which will indicate whether there is a prepayment penalty. You can also give your mortgage company a call.
Back to the those letters that you may be getting in the mail. I’ve already received one of them since closing on my new condo last month. I’m not going to name the company, but I do want to go through some of the red flags from the letter.
RED FLAG #1:
This letter comes from a company that I don’t do business with. It’s based in Ohio. I live in Washington, DC. The letter starts with “Caliber Home Loans may not have made you aware of the option to set up a smaller bi-weekly debit option for your mortgage loan.” In fact, Caliber did tell me about this option because I asked before I got the loan with them. Already, I’m suspicious about this pitch!
RED FLAG #2:
The letter goes on to vaguely say its mortgage savings program has been featured on CBS NEWS, OPRAH, CNN MONEY and THE WALL STREET JOURNAL. After a quick Google search, I couldn’t find any link between the company that sent me the letter and these news outlets. I did, however, find stories about the general benefits of prepaying your mortgage. For full disclosure, I’m a former employee of CNN.
(BTW: Why pay bi-weekly in the first place? By doing so, you’re making 26 half-payments a year instead of 12 full payments. In other words, that’s equal to making 13 full payments a year.)
RED FLAG #3:
The letter also provides sample calculations to show how much money I can save by using their program. Somehow, the company knows that my mortgage is for $225,200. However, all of the other information they used, including the interest rate, isn’t accurate. Again, I don’t know this company. Why should I trust them?
RED FLAG #4:
The letter includes deadline pressure. It asks me to respond no later than December 11th. Having paid off a mortgage before, I know that you can usually prepay whenever you want. The mortgage company is generally happy to take your money at an earlier date no matter when you decide to start. Why would there be a deadline?
RED FLAG #5:
I went back to Google to discover my final red flag. I typed the name of the company that sent me this letter into my browser and found a number of complaints from online commenters. Some used the four-letter “S” word… the one that rhymes with Pam. I also found reviews that seemed suspiciously glowing.
In most cases, you can set up a bi-weekly payment program on your own for ABSOLUTELY NO COST. All you need to do is call your lender and ask. Tell them that you’re interested in paying off your mortgage early and see what the options are. The company behind this solicitation is making money (YES, THERE IS A FEE) to pay your bills for you. Does that make sense? Do you do that with any of your other bills? If you have the discipline to prepay your mortgage, you don’t need “help” from the companies behind the solicitations!
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