Bi-Weekly payment programs, are they a good idea?

With bi-weekly payment programs the lender or a 3rd party servicer will typically charge $200-$400 to sign up for the program. They will then automatically draw one half of your total monthly payment every 2 weeks and apply it to your mortgage. The reason that a bi-weekly plan pays down your mortgage quicker than the regular amortization schedule is NOT because you’re making the payment any earlier in the month but because you are making 13 payments per year (there are 52 weeks in a year, 26 bi-weekly periods, and therefore 13 total payments made).

With that said, keep in mind that you can create this very same impact by simply making one extra payment per year or by increasing your monthly mortgage payment by 1/12th of your principal and interest payment. For example, if your monthly principal and interest payment is $1,200 per month then you could add $100 per month (1/12th of $1,200) and have the same impact as the bi-weekly payment program without signing up or paying a fee.

The other consideration to make is how important is it for you to pay down your mortgage? Are their other financial objectives that deserve more attention or are better choices (i.e. retirement savings, investing for kids college education, paying down other debts, building a savings reserve fund, etc.).

Rate Update May 30, 2008

Mortgage rates made a surprise reversal lower this morning on inflation & spending data that came in line with analysts’ expectations. Furthermore, we also think that an announcement out of the Federal government that they are opening an investigation regarding price manipulation in the energy trading markets could be helping mortgage rates. For a more detailed explanation about this reasoning watch today’s you tube video.

We still believe rates will move higher based on technical trading patterns so we are going to maintain a locking bias.

Current Outlook: locking bias

Rate Update May 29, 2008

As we spoke about in Tuesday's 'rate update' investor sentiment seems to transitioning away from concerns about the credit markets and into concerns over inflation. This morning the Commerce Department revised their 1st quarter estimate of GDP by .3%. This positive news for the economy has pushed mortgage-backed bond below the 200-day moving average (blue line) as shown below.


Lower bond prices results in higher interest rates which is what we’re seeing this morning. Mortgage-backed bonds had traded above the 200-day moving average for the past 9 months. The shift today may mark higher interest rates for the foreseeable future.

Current Outlook: locking

Rate Update May 28, 2008

Mortgage rates are modestly higher today than they were yesterday. For clients who did not get their rates locked yesterday we are recommending a floating position in the near-term because of technical trading patterns. If you look at the chart below you can see that bond prices have traded lower since last Wednesday when mortgage rates were about .25% better.

Bond prices have touched the 200-day moving average this morning (the blue line) and we expect this technical level to hold. If it does, bond prices should improve over the next couple days along with interest rates. The risk is that if this technical level does not hold we could see rates get much worse quickly.

Current Outlook: floating bias

Rate Update May 27, 2008

Inflation, inflation, inflation seems to be popping up everywhere. This morning’s monthly consumer confidence report showed that consumer confidence sunk to a 16 year low. Ordinarily bad economic news would help mortgage rates but this morning it’s not the case. Watch today’s you tube video to understand why.

Here are a couple other links that are referenced in today’s you tube video:
*Wikipedia.org- Rational Expectations & inflation
*The Economist- Inflation in emerging economies
*Evan’s blog- Inflation & mortgage rates

Current Outlook: locking

Rate Update May 22, 2008

As oil prices continue to hit new record highs inflation concerns are again weighing on bond prices which is pushing rates higher. In yesterday’s rate update we said:

“However, we remain concerned that continued inflation concerns will drag bond prices below these levels pushing rates higher.”

Unfortunately we are going to shift our outlook to locking. The last few times that mortgage-backed bonds have been pushed below technical layers of support they’ve moved sharply lower over the course of 2-3 trading days. For now we recommend locking in.

Current Outlook: locking

Rate Update May 21, 2008

There is no new economic data scheduled for release today. At 2PM EST the Fed will release the minutes from their April 30th meeting. Sometimes this event can draw some reaction in the financial markets.

In the absence of any significant financial news we will be watching the stock market and technical trading patterns for clues as to the direction of mortgage rates. From a technical perspective mortgage-backed bonds are trading just above multiple layers of support (shown circled on the right side of the graph below). Should bonds bounce higher of these levels rates would surely improve. However, we remain concerned that continued inflation concerns will drag bond prices below these levels pushing rates higher.

Current Outlook: locking bias.