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I have a mortgage with Bank of America. I called them in December to change my payments to bi-weekly in order to save on interest. I looked at my online mortgage account today and noticed that they have not applied the last two bi-weekly payments to my principal or interest. The funds were deducted from my bank account, but put in a "Funds to Suspense" account.
See screenshot below:
Statement Screenshot
I called them up to see what was going on, and was told that the funds will be applied to my principal balance tomorrow. My question is, if they apply the bi-weekly payments using this scheme, will I benefit from interest savings?

I will be keeping a close eye on the online account to make sure the funds are applied. Don't want to end up like this person: See post by Robin of Pine CO

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1/22/2008 Update: Still don't see the payment applied online. Called them today and was told they will fix it by 1/24. I had e-mailed them a couple days ago, still no response. Very disappointed with BofA customer service.

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1/28/2008 Update: Didn't get posted by 1/24. Called and asked to speak to supervisor, who was able to finally get the funds posted to my account. Note: 4 more days, and I would have been reported as 30 days late to credit bureaus!

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From what I understand, regarding suspense accounts, that is where they put money until they figure out what to do with it. If there is a partial payment, it goes into suspense until they get enough for a complete payment.

It doesn't sound like you will benefit from making bi-monthly payments if they are putting the funds in suspense, as I doubt it offsets interest owed and it doesn't accrue any interest. Indeed you'd fare just the same by making one full payment at year end or just adding 1/12th of a monthly payment each month.

The way to not end up like that couple is to not be weak and read up on RESPA and what a qualified written request is.

How exactly do you save on interest by going bi-weekly? If it's because you'd pay off the mortgage sooner this way, then I have better ways of investing my extra money!!

bpydimer said: How exactly do you save on interest by going bi-weekly? If it's because you'd pay off the mortgage sooner this way, then I have better ways of investing my extra money!!

Again it all depends on how you look at it. Some pay biweekly because that is how they get paid and their 30 year mortgage gets paid off in 23 years. If you pay biweekly and they apply payment right away (most do not) then you may save a little interest. Most people do bi weekly to get their house paid off 7 years earlier and for housekeeping purposes it makes it easy for them to just pay 1/26 of a yearly mortgage amount each paycheck.

bpydimer said: How exactly do you save on interest by going bi-weekly? If it's because you'd pay off the mortgage sooner this way, then I have better ways of investing my extra money!!

On a 100K loan @ 6%

A)
Biweekly Payments Applied BiWeekly
Interest saved = $24,809.50

B)
Biweekly Payments Applied Monthly
Interested saved = $23,638.88

I think this answers my original question also. I just have to make sure they apply the funds tomorrow.

kash007 said: bpydimer said: How exactly do you save on interest by going bi-weekly? If it's because you'd pay off the mortgage sooner this way, then I have better ways of investing my extra money!!

On a 100K loan @ 6%

A)
Biweekly Payments Applied BiWeekly
Interest saved = $24,809.50

B)
Biweekly Payments Applied Monthly
Interested saved = $23,638.88

I think this answers my original question also. I just have to make sure they apply the funds tomorrow.


It's not that simple.

It all depends on how the interest is amortized. If you make make biweekly payments and the interest is amortized monthly, all you have done is lose interest on the money taken out of your account prior to the payment due date. They make it look like you are saving money because an extra payment per year starting with year 1 saves quite abit in interest over the life of the loan.

Now, if with the payment change, they start amortizing the interest bi-weekly (unlikely, but possible), then you are saving money.

Even if the payment is being "applied" to the account when you pay it, it only makes a difference if they change the way the interest is calculated.

gatzdon said:

Even if the payment is being "applied" to the account when you pay it, it only makes a difference if they change the way the interest is calculated.


So how do I find out how they are calculating the interest and make sure it is being amortized bi-weekly?

The easiest way to achieve essentially the same result, and all without involving anyone else, is to increase your monthly mortgage payment by 1/12th.

The difference between this and asking them to apply bi-weekly payments, assuming they actually apply them bi-weekly, is very minimal. As in, if you to actually mail payments through postal mail the cost of postage would probably cancel any benefit.

Of course see forum threads on whether you should be paying off your mortgage in the first place.

I hope you aren't PAYING Bank of America for this "service" although you probably are. All they are doing is collecting half of your payment every two weeks and then making your regular payment for you. You get the benefit of thirteen payments a year instead of twelve, but you could do the same thing by adding an extra one twelth of a payment to each monthly payment.

Making PARTIAL and ERRATIC payments is what got that character in your linked thread in trouble. Never mail your mortgage company a partial payment. Any time you mail less than the required payment, there is a chance that they will credit the payment as an incomplete payment, or as a payment of principal only, or as something other than the required monthly payment. And if you mail them an extra check in the middle of the month, they are likely to simply credit it as a portion of next month's payment paid a little ahead of time, but it might not serve to reduce your interest costs (depends on how they credit it and how they compute your interest).

Just make your monthly payments and add a little extra each month if it makes you feel better.

dcwilbur: No, I'm not paying anything for this service.

I don't think it is worth all the trouble. The funds haven't been posted to my account today either. I am going to tell them to switch it back to regular monthly payments. I am going to check my credit report after a couple of months to make sure they don't report January as late payment or something.

If BOA is anything like other mortgage companies I've dealt with, the online access to your account should be able to show you a breakdown of your past payments and an amortization of your loan.

Using the info from that, you should be able to see how your payments were being applied.



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