Experts Call Bisaver A Bad Option

Posted: March 17, 1994

Homeowners are getting tempting offers for a "special system" that will ''painlessly" reduce their mortgage payments by thousands of dollars.

Direct-mail solicitations for the BiSaver "biweekly mortgage cost reduction program" promise quicker loan payoffs and dramatic savings on interest expenses.

All the benefits are theirs for a one-time fee of $359.

Sound like a great deal?

It's not. In fact, BiSaver, a mortgage-payment service offered by GE Capital Mortgage Services Inc., is a waste of money, and its sales pitch is misleading, consumer finance experts say.

Homeowners can achieve all the same benefits on their own, and save BiSaver's $359 fee, by simply increasing their monthly mortgage payments.

BiSaver "does nothing for you that you can't do just as easily yourself, plus it adds some risk," said Marc Eisenson, author of The Banker's Secret, a guide to managing debt.

Dorothy K. Lebeau, a fee-only financial planner in Rydal, said that biweekly mortgage payment programs are "a useless service."

"They are charging too much for something you can do for free," Lebeau said.

A spokeswoman for BiSaver, which is marketed by Douglas-Michaels Corp. in Merrifield, Va., said yesterday that no one was available to comment.

GE Capital Mortgage Services, which offers BiSaver through direct-mail solicitations, said many customers have requested the option of a biweekly payment plan.

"We offer it because a fair number of customers have expressed an interest," said Tom Lamb, a GE Capital spokesman in Stamford, Conn.

But another GE Capital spokesman, Mike Kachel, acknowledged that customers could achieve similar savings without paying fees.

"There is absolutely no question that people can do this on their own," he said.

BiSaver is attractive to people who "perhaps don't have the discipline to pay down their mortgage, or just don't want the hassle," Kachel said.

BiSaver offers a system for making one additional mortgage payment a year, which shortens the term of a 30-year mortgage by seven years. The loan would be paid off in 23 years, saving thousands of dollars in interest costs.

BiSaver customers pay about half of their monthly mortgage payment every 14 days through automatic account withdrawals. The 26 partial payments during the year are the equivalent of about 13 monthly payments, instead of the usual 12.

By reducing loan principal, the extra payment shortens the loan term and substantially reduces interest expenses.

"Since there are 26 biweekly (payments) in a year, each year you will have made the equivalent of one extra mortgage payment - painlessly reducing your debt," according to a BiSaver letter.

BiSaver's pitch appeals to many consumers because the program is based on a sound technique for reducing debt, experts said.

"I like the idea of making an extra mortgage payment every year that will be applied to the loan's principal," said Grant Rawdin, president of Wescott

Financial Planning Group in Philadelphia. "It's a good strategy for reducing debt and increasing equity in a home."

BiSaver's promotional material gives the impression that prepaying the mortgage is difficult to do without its "special system," said Eisenson. That's misleading, he added.

Homeowners could achieve the same savings by simply tacking on an additional principal payment to their regular monthly payment, Eisenson said. Mortgage payment stubs have a line for indicating the amount of additional principal.

To make one additional mortgage payment during the year, homeowners would increase their monthly payment by a twelfth. That would mean increasing a $600 monthly payment to $650, or a $1,200 payment to $1,300, Eisenson said.

If discipline is a problem, customers can have the monthly payment and additional principal deducted automatically from bank accounts, at no extra charge.

GE Capital, for example, has 26,000 customers who pay their mortgages through automatic bank drafts, Kachel said. What's more, customers can change the additional principal amount monthly, he said.

With BiSaver, customers lose control over the timing and amount of payments, which are deducted automatically on the 13th and 27th of the month. They risk incurring penalty fees if they fail to keep sufficient funds to cover withdrawals on those days, Eisenson said.

By making payments on their own, customers have flexibility to make payments at any time until the 15th of the month, he said.

What's more, they can earn interest by keeping money in the bank for an additional two to four weeks before paying the mortgage. BiSaver collects the money sooner, but doesn't credit payments to the loan account until they are due.

Even if BiSaver isn't a good deal, financial planners say prepaying the mortgage can be a good investment for many consumers. The rate of return is equal to the mortgage interest rate, which is around 7 percent or higher for most people with fixed-rate mortgages.

Still, there may be higher priorities for reducing debt. Spare cash should be used first to pay down personal loans carrying higher interest rates, such as credit cards and automobile loans, Lebeau said.

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