Warning about Wells Fargo automatic "bi-weekly" payment plan

[cschick]

I'm sure that many of you are familiar with the concept of doing bi-weekly mortgage payments, which in theory are supposed to help you by accumulating less interest over time (by applying payments every 2 weeks) and resulting in 13 payments over 12 months.

When we refinanced with Wells Fargo in January, we were offered the option of doing an automatic bi-weekly payment. We confirmed with the person that we were dealing with that the half bi-weekly payment would be applied immediately, since we had heard that many banks had started to refuse to apply until a "full" payment was received. After that was confirmed, we signed up for the plan.

We received our quarterly statement today and discovered that NO that was not true. The first half-payment is being held until the second half-payment is received before being applied to our mortgage. When we called Wells Fargo on this issue this evening, they stated that they do not accept partial mortgage payments and thus even their automatic bi-weekly program is only a courtesy to us, to make it "easier" for us to budget our mortgage payment. And we were also told that if we went to manually paying bi-weekly, our first payment would be held until our second was received.

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[pbjmama]

Unfortunately I think this is pretty common now. Our mortgage is through a credit union and they have the same policy.

[MamaMonica]

Bummer. Don't you have to pay extra to do the bi-weekly program? We were offered the program a few years ago and it had a set up fee (we didn't choose to do it).

[LemonPie]

Yeah, B of A won't do it either or they want to charge for the privilege.

You can still take half a payment out of every check though. On those months where you get three paychecks, keep the extra half payment in a savings account and make a 13th payment every year. The real trick is the 13th payment, not applying half-payments to your mortgage all the time.

[sunnysandiegan]

Our credit union still offers the bi-weekly option with no fees and does apply the half-payment. However, DH is paid on the 15th and last day of the month and the bi-weekly payments didn't line up for us ten years ago when we got our first mortgage and had to budget every dollar.

We figured out with our first re-fi a couple years after when we were in much better financial shape to divide our monthly payment by twelve and add that amount to each mortgage payment as "principal only". We effectively make 13 payments each year on the loan and it shaves off years with zero hassle and zero misunderstanding (and no costs compared to other financial institutions, but ours doesn't charge either way).

FWIW, any extra amount towards principal each month does wonders for reducing your total interest paid. Paying extra each month does more than paying a larger lump sum once a year (even when the same annual dollar amount) - due to compounding interest. The goal is to lower the principal amount as often as possible, so that less interest is computed before each payment. It is minor with small loans, but becomes much bigger with larger loans like a mortgage, especially a mortgage in a high COL.

[cschick]

Originally Posted by sunnysandiegan

FWIW, any extra amount towards principal each month does wonders for reducing your total interest paid. Paying extra each month does more than paying a larger lump sum once a year (even when the same annual dollar amount) - due to compounding interest. The goal is to lower the principal amount as often as possible, so that less interest is computed before each payment. It is minor with small loans, but becomes much bigger with larger loans like a mortgage, especially a mortgage in a high COL.

Yeah, we know--we've been making more than the minimum payment for years. Extra on each, and generally about $3000-5000 extra to principal in a lump sum each December.

For example, right now our monthly mortgage payment is $1700, but we set up the biweekly to be payments of $1000 each.*

And despite WF explicitly telling us in December that they did accept and immediately apply partial payments under the program, that's now $1000 they're holding onto for 14 days out of every month rather than it being in our interest-bearing account. Maybe that's just peanuts in the scheme of things, but the fact that we were lied to in December (either they didn't take partial payments already, or the policy changed on Jan 1) just pisses me off.

*And that all is only principal+interest. We do not escrow.

[sunnysandiegan]

I hear your frustration. Maybe you can change the bi-weekly to monthly payments? You already understand the concept and are doing exactly the right thing.

Credit unions tend to be so much more flexible. We can switch our automatic payment method and amount any time (well, that is not technically accurate....we cannot make any changes during the 1st through 10th of any month) very easily online - no cost. I don't know if Wells Fargo or other traditional banks allow that. Our mortgage (the loan itself) is set, but the payment options are flexible, if that makes sense.