How Does a Biweekly Mortgage Payment Company Really Work?

Homeowners who do not like carrying debt anticipate the day they become mortgage-free. You may have taken out a mortgage with a long repayment term to get an affordable payment. If you intend to pay the loan off sooner than scheduled, you might consider switching to a biweekly payment program and using a third party to facilitate the task. It is important to understand how a biweekly mortgage payment company really works before signing up for an accelerated payoff plan.

The Basics

A third-party biweekly mortgage company is an intermediary between you and the lender. It withdraws a certain amount from your bank account every two weeks and hold the funds in a trust account. Each withdrawal equals half of your monthly mortgage payment. The company sends a full mortgage payment from the trust account each month to your lender when it is due. Biweekly mortgage companies tout quicker pay off of your mortgage and lower interest paid over the life of your loan as reasons for making the arrangement.

Calculation

By paying your mortgage as scheduled, you send 12 payments annually to your lender over the life of your loan. A biweekly mortgage payment company collects two payments -- each equal to half your required payment amount --from you every two weeks and holds the money in a trust account from which it pulls the monthly payment. Biweekly payments for the 52 weeks in a year result in 26 half payments, or 13 full monthly payments. The company sends that extra month of payment to your lender, which applies it to your principal balance.

Considerations

Biweekly mortgage payment companies provide their services for a fee. They charge several hundred dollars up front to set up the account. Prices vary by company, but it typically costs between $195 and $350 to get started, according to Real Estate ABC. They may also charge recurring fees for the deductions to your checking account, payments made to the lender on your behalf, and maintenance. The company may also pocket the interest on your account if it earns interest.

Potential Problems

Biweekly escrow services are set up for your convenience, but mismanagement is not unheard of, according to Real Estate ABC. A payment may be missed, sent in late or miscalculated due to accounting errors or even fraud. A payment more than 30 days late negatively impacts your credit. You can eventually correct a problem with your biweekly mortgage company, but your lender will require you to make an immediate mortgage payment to bring your account current. Ultimately, you are responsible for the loan and even if funds have been removed from your bank account, you may have to make a payment to your lender to correct mismanagement.