Bi-Weekly Payments Schedules

Published in The Mortgage Finance Review

by Rick Christeson, Chairman, Dynamic Interface Systems Corporation

Talking to lenders throughout the country, I've discovered a rapid acceleration of companies offering bi-weekly payment schedules to their borrowers.

Most of this innovative approach is centered in the Northeast, Midwest and in Canada. Because of the new tax laws, many banks and SRLs are beginning to look at making a strong market for second mortgages to offset the reduction of new loans for autos and other big-ticket items. At the same time, consumers are more interest-rate conscious.

Both new trends are putting added pressure on lenders, especially mortgage brokers and bankers, to entice consumers to shop around for the best deals they can get on low-interest loans.

Those companies making bi-weekly payment schedules available have indicated that as consumer awareness broadens on the savings to them, through use of the bi-weekly system, there has been a rapid rise in automation required to accommodate the increased consumer demand.

This trend is heading west to California, where educated consumers will begin asking for bi-weekly payments. By offering this innovative service, the lender benefits through less paperwork, improved cash flow, less risk and quicker payoffs. The borrower benefits by paying thousands less in interest costs over the term of the loan, through rapid payoff of principal, and ease of payment through debiting of individual checking accounts. On a 30-year loan, for example, of $100,000 at 9% paid monthly, the total interest paid would be $189,663 with payments of $804.62 monthly, whereas if paid every 14 days with bi-weekly accruals of interest, the loan would be paid off in 18 years for a total cost of $102,106 with bi-weekly payments of $431.85.

The lender will not suffer any loss of yield using this method of payback. Those who are presently automated and using the bi-weekly schedules have indicated a great increase in their ability to attract new customers, with virtually no increased costs.

In anticipation of this coming trend, we added to our LOANLEDGER™ software, the bi-weekly, weekly, semi-monthly, semi-annual, and quarterly schedules to the normal monthly payback calculation.

With more emphasis being placed on non-deductible interest costs, mortgages are the last bastion of tax shelters for the average consumer. This bodes well for mortgage professionals who are prepared, through automation, to offer the bi-weekly schedules to their marketing package.