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02-17-2010 02:36 PM
Finally closed on my house utilizing the VA loan, my mortgage is with bank of America. I signed for the Bi-monthly mortgages payments in order to help pay off my mortgage faster as you all know. This is how it works I pay half of the monthly payment twice a month (for example, I pay 1/2 of the monthly payment on the 1st of the month, and the other half on the 15th). There will be a total of 24 semi-monthly payments in a twelve-month period. So, I started making my payments and now four months later, I’d checked the status of my payments. I found out that Bank of America is not applying the half payment right away but waiting until the end of the month and apply it to the loan balance.
I asked, what is BofA doing with my half payment. The answer is going to partial account and hold over until the end of the month. The haft payment is not being applying to my mortgage account right away. Note that if my lender withdraws half of the monthly payment from my bank account every half of the month, but apply the payments to your loan only once a month, I will save nothing at all. But for BofA is win and win situation. Bank of America is collecting interest for 15 days on my mortgage and plus as we all know the half payment is not just sitting there collecting dust. The haft payment is making free interest for bank of America.
I’m sure, this happening to hundreds of people in our country. Imagine all the compound interest from mortgages that BofA is collecting and the amount of interest that is making with all the half payments? This is totally unfair for hard working Americans.
Last, Bank of America offers a 26 bi-weekly plan also but the payments are not apply until the end of the month also.
02-17-2010 02:53 PM
Do you think this is only BofA? I suspect this to be an issue with lenders. Did you look at the amortization schedule in your loan documents and compare with what you thought would be happening?
Can you change the payments back to monthly?
I have never done a bi-monthly as I couldn't get beyond paying a fee to do this. I typically pay more than the mortgage payment anyway.
02-17-2010 07:43 PM - edited 02-17-2010 07:45 PM
What makes you think that other lenders do it differently than BofA?
FYI: thought I would add that I'm not fond of BofA. In fact I dislike them on so many levels.
02-18-2010 02:04 AM
It is a complete MYTH that merely paying your normal mortgage payment on a twice/month basis saves you any significant amount of money. That is a misinterpretation of another strategy - which is taking your normal monthly payment, dividing it in half, then making that payment every two weeks (not twice a month), so that you end up paying 26 larger payments a year, a larger amount than you would if you did the normal payment amortized monthly, bimonthly, every two weeks.
Take for example a $300,000 principal, 5% interest, 30 years fixed. If you pay the normal monthly payment of $1,610.46, you will end up paying $279,767.34 in interest. If you pay the normal bi-monthly payment of $804.87, you will end up paying $279,507.48, for a whopping savings of $259.86, which is a return of one tenth of one percent of the interest you pay. But you make 360 more payments - which is a savings of 72 cents per payment. Now imaging that it costs the bank money to process those 360 more payments - extra payments that save you virtually nothing over the life of the loan. Let's say you pay weekly, the total interest will be $279,367.53 with a "savings" of $399.47.
Now, for the every two-week payment strategy. Take that $1,610.46, divide by half and pay $805.23 every two weeks, for 26 weeks per year. That will result in a total interest of $228,275.69, with a savings of $51,491.65, which IS substantial.
It's not the number of payments that you make that's important for savings. It's how much extra you pay each year than you would otherwise do with a standard amortization.
The savings work out nearly the same if you just make 12 payments a year that are 1/12th higher than your regular payment, such as a monthly payment of $1,744.67.
Now I'm not disputing the issue anyone has with BofA not crediting the payments as they should. I'm saying that even when the payments are posted, paying the same monthly amount - but in twice a month increments - isn't a way to save a significant amount of money.
Even in the best of these scenarios, you still end up paying 75% of the value of your home in total interest (neglecting tax offsets, inflation, etc.). Buying a $150,000 home and paying it off in 9 years with a monthly payment of $1,727.59 will cost a mere 36,579.82 in interest, representing only 25% of the total of the principal, saving you about $192,000 vs the $300K/30year option.
02-18-2010 08:33 AM
If you wish to know how much money will save you if BofA will apply your half payments. Click on the below link. For me it will 4 years and 7 months. Nobody is arguing that adding more money will make your mortgage go faster.
THE ARGUE IS THAT BANK OF AMERICA IS NOT APPLYING THE HALF PAYMENTS RIGHT AWAY AND HAVING THE HALF PAYMENT SEAT IN A PARTIAL ACCOUNT COLLECTING INTEREST FOR BOFA. THE BORROWER DOES NOT GAIN ANY INTEREST FOR HALF PAYMENT OR REDUCE HIS/HER MORTGAGE.
02-18-2010 09:53 AM
If you are making the payments you said, by paying half on the 1st and half on the 15th, you will NOT shorten your loan term by 4 years and 7 months. You need to read that web page calculator more closely. It agrees with what I describe above.
"This calculator will show you how much you will save if you make 1/2 of your mortgage payment every two weeks instead of making a full mortgage payment once a month. In effect, you will be making one extra mortgage payment per year -- without hardly noticing the additional cash outflow."
According to what you said, you are not paying every two weeks, you are paying twice a month. That's not the same thing. You are making half of your monthly payment twice as often - that's the same total amount of payments per year. If you pay half of your monthly payment every two weeks, you will be paying 13 monthly payments per year - which is one extra payment per year.
As I said, you do not get substantial savings from merely paying twice as often. You only get the substantial savings from paying more per year, whether that amount is divided into 12, 24, or 26 payments per year.
I know you intended to address the issue of BofA applying your payments. But it could be far more important for you to realize that you are not going to get the savings you expect, regardless of how you think BofA is handling your payments, while you can still possibly change your payment schedule to get the benefits you want. It would be a huge disappointment if you discover you have another 5 years of payments, too late to do anything about it, because you didn't understand the issue I'm telling you about.
Regarding BofA crediting your account, you probably agreed to the practice they're following when you signed the loan agreement. I'm not saying I agree with it, but if you did sign off on it, complaining here isn't going to help. What might help is to read that section more carefully to see what you have to do to make extra principal payments. For example, if you simply make those 1/2 mortgage payments every 2 weeks (26 times per year), you might find that your extra amount of payments will be credited to principal as soon as your running balance exceeds the next mortgage payment that is due. This will have virtually the same effect of reducing your term and getting you the savings you expect. So long as you make that extra annual mortgage payment, and that payment gets applied to the principle before the end of the year, you will get the savings. But if you make those 1/2 mortgage payments twice a month (24 times per year), it doesn't really matter much how they credit them to your account.
02-18-2010 06:45 PM
JQUICK.. ITS BASIC MATH.... think what you are saying... if they payments are applied on the 15 you will pay your loan mortgage quicker. Your data is incorrect. yes BOFA has the 26 bi weekly payment and all it is 1 extra payment a year. I got it... i can do that on my own.
SIMPLE..... if BOFA is holding the half payments for 15 days and what do you think they are doing? just money collecting dust.... for 15 days... of course not, they are greedy!!!! they are making free interest for them.
Last, i didn't agree about any of this bi-monthly payments because unfortunally my loan was sold to them.
JQUICK, FYI... I went as for as to file a complaint with the Federal Reserve Office at the below link and they took their time to mail a letter back in the mail. They will check into this becasue obviously totally wrong. BOFA has two months to reply my complaint in writting. Which they did and they said "WE DO NOT ACCEPT HALF PAYMENTS", so now I have to write a response letter back to the Federal Reserve Office and let them know that BOFA is not nothing at all. They will take it to a higher level.
if any of you want to file a complain against BOFA..... click on the bellow link....I'm sure this is happing to thousands of hard working Americans.
02-18-2010 06:53 PM
JQUICK, last, they do offer the 26 payment plan.... but of course they don't process the payment until they have they full amount which adds up to just one extra payment a year. Which you can do that without the 26 payment pla and same as the the 24 month payment plan. BOFA will hold it until 1st of each month.