Cut Mortgage Length By Consolidating On Your Own

Added June 5, 2004 by Ilyce R. Glink

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Summary: Is it a good idea to refinance and consolidate two loans into one? A bi-weekly loan can save you in the long run if you can afford it, but you can also avoid refinancing and still get the same results.

Q: I was handed a copy of your article in the LA Times concerning mortgages that was entitled, "Adjustable or Fixed Rate - It's Your Call"

I have a $62,000 first mortgage at 7.125% and a $40,000 second mortgage at Prime. I was thinking of refinancing and consolidating the two loans into one loan from World Savings.

They claim that they are a true bi-weekly amortizing loan that has a start pay rate of approximately 3% and a start Note rate of approximately 6%. Because it is bi-weekly, I would be making 26 payments per year. Each year, the bi-weekly payment cannot increase by more than 7.5%. There is a chance of negative amortization but the illustration/projection that they provided me shows a maximum negative amortization of only 2% of the principal balance. After a couple of years, the negative amortization disappears and the loan actually pays off i.e. fully amortizes by the 24th year. Do you know anyone that has used this bi-weekly product? In a period of low interest rates does it matter that I would be choosing an ARM vs. a fixed rate? Any further thoughts on World Savings? Thank you in advance for your advice.

A: You can achieve the exact same rate of return (or better) by doing it yourself. With your regular monthly payment, simply add 1/12 onto the mortgage (attach the difference as a separate check marked "PAY DOWN BALANCE"). If you do this starting with the first payment, you will cut your 30-year mortgage to 21-22 years. And, it's free. You won't pay anyone a set up fee or anything.

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