DEAR BOB: We own our home and recently learned about a bi-weekly mortgage, which would pay off our home loan in about 21 years. But when I contacted our credit union mortgage lender, they refused to convert our home loan to bi-weekly payments so we can save thousands of interest dollars. Now we are getting offers from a company that will set us up with a bi-weekly mortgage to save us money. What should we do? – Michael E.
DEAR MICHAEL: Your current credit union mortgage lender has no obligation to convert your home loan into a bi-weekly mortgage.
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Reading between the lines of your letter, it sounds like you met someone who represents a bi-weekly mortgage plan. For a fee, usually around $395, plus a $6 monthly fee, you can be set up with a bi-weekly mortgage.
But did you read the fine print that you will still have the same mortgage, with the bi-weekly mortgage company collecting one-half of your current monthly payment every two weeks from your checking account, and remitting the extra amount to your lender each year?
It’s a scam. You can accomplish the same result and interest savings without any hassle or extra cost.
Just divide your monthly principal and interest payment by 12. Disregard any escrow for property taxes and insurance. Then add that amount to your regular monthly mortgage payment, clearly marked for principal reduction.
For example, suppose $1,200 is your monthly principal and interest payment. Dividing by 12 is $100. Then add the $100 in this example to each monthly mortgage payment. You will accomplish the same bi-weekly mortgage interest savings without any extra cost.
UNDERINSURED HOMEOWNER MUST PAY OWN LOSS
DEAR BOB: I buy my homeowner’s insurance through my mortgage lender’s insurance affiliate. But about four months ago, while I was away, my home suffered a major fire. It will cost at least $150,000 to repair. But my insurance will only cover $34,000, the amount of my mortgage balance. I thought I had adequate fire insurance because I trusted the insurance company. What can I do? – Venice H.
DEAR VENICE: It sounds like your homeowner’s insurance company only insured you for the amount of the mortgage balance. Unfortunately, millions of homeowners make the same mistake. But most never suffer a major loss, as you did.
I suggest you retain a local attorney to negotiate with your insurance company and your mortgage lender. Because the lender recommended the insurance company who underinsured you, you may have grounds for a lawsuit for fraud and misrepresentation against both parties.
Your situation is a classic example why homeowners should not insure for the amount of their mortgages. Instead, insure for home replacement cost. Your mortgage balance has absolutely nothing to do with the cost of rebuilding your home after a fire loss, as you sadly discovered.
MUST REFINANCING HOMEOWNER AGAIN BUY TITLE INSURANCE?
DEAR BOB: We bought our house about two years ago. Due to the recent drop in home mortgage interest rates, we recently refinanced to cut our interest rate about one-half percent. However, we were charged for title insurance again. Is it legal to charge us for title insurance although we just paid for title insurance about two years ago? – Jon H.
DEAR JON: Every mortgage lender will insist on receiving a new lender’s title insurance policy. Because the title insurance you purchased two years ago is not transferable, your new mortgage lender insisted on receiving a new lender’s title policy.
However, in many states, it is possible to obtain a lender’s title insurance policy discount, sometimes called a “bring down rate,” if the property was purchased or refinanced within the last year or two. I suggest you contact your title insurance to check if you were entitled to a lender’s title insurance policy discount.
The new Robert Bruss special report, “How to Become a Super-Successful Real Estate Negotiator,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.
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