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Biweekly Mortgages: Do It Yourself to Save Money

This article was written by in Debt Reduction, Real Estate and Home. 3 comments.

On the surface, it seems like it would make sense to enroll in a biweekly mortgage payment plan. In theory, these biweekly mortgage programs offered by lending servicing companies work by allowing you to send half of your monthly mortgage amount every two weeks. As a result, you make two “extra” biweekly payments each year, reducing the total number of months it takes to pay off the mortgage.

There are some misconceptions or disadvantages, though, so it pays to read the fine print before you sign up for one of these plans.

  • You may not save on interest. While it sounds like sending a payment earlier in the month will reduce the amount of interest you need to pay, that is not necessarily the case. Furthermore, even if you send a partial payment early, your loan servicing company may just hold onto your funds in their own account before sending one monthly payment to the lender.
  • You might pay more. Loan servicing companies often charge extra fees for biweekly payment plans. You may need to pay an up-front fee of over $400. If not, the company will likely charge a transaction fee for each payment you make or a monthly fee for remaining within the program.

If your loan agreement allows it, you would most likely be better off creating your own accelerated payment plan.

  • Check with your lender to make sure you will be allowed to send a payments early.
  • If you are allowed, ask whether you will be charged a fee for prepaying your mortgage. This fee punishes consumers who want to be more responsible about their mortgage payments.
  • Next, ensure that the lender will credit the funds to your loan right away rather than waiting until the end of the month.
  • Furthermore, you must indicate that any payment above the amount you owe each month should be applied to reducing your principal, not interest, to reduce the total amount of interest you pay over the course of the loan.

If the lender responds with favorable answers, pay extra each month, ensuring to note on your payment coupon that the extra funds should be designated towards the loan principal.

Don’t forget to consider investing rather than accelerating your mortgage repayment. Depending on your goals, your time horizon, and your plans for leaving your current house, prepaying your mortgage may not be the best financial decision.

Updated March 10, 2011 and originally published April 29, 2010.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 3 comments… read them below or add one }

avatar 1 Anonymous

I have GMAC and I can prepay any amount anytime. HOWEVER, they only credit my account with the extra payment on the first of the month. HOWEVER, since interest I can receive is so low, I do not worry about this and thus make payments whenever I have extra cash.

I hate debt and thus getting rid of my mortgage is what matters most. I started off with a 15 year mortgage. I’m 2 years into it my mortgage and based upon all the prepayments I have already made, my mortgage will be paid off in 8 more years – 10 years in total.

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avatar 2 Anonymous

If you have a fixed rate loan under 5% it might be better not to pay back any principle early. This is an era of cheap money at the moment and if inflation kicks up, which many think it might, this will be really cheap money. It was one thing to pay back early when mortgage interest rates were 7, 8, 9%.

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avatar 3 Anonymous

Kyle Chezum put it quite simply,
* Set up a new savings account, separate from any other accounts you have.
* Deposit half of your mortgage payment into this account every other week. In our example, that’s $1,000 from every paycheck.
* Continue making your monthly payments—your lender won’t know the difference—but pay them from this account.
* At the end of the year, you’ll have an additional $2,000 saved up in this account.
* Use this money to make an extra lump sum mortgage payment at the end of the year.

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