BI-WEEKLY MORTGAGES

A bi-weekly mortgage is a plan that can save you tens of thousands of dollars in interest over the course of your mortgage loan, and also enable you to pay your mortgage off much earlier.

The beauty of a bi-weekly mortgage plan is that it's something you do on your own.

How does a bi-weekly mortgage plan save you money? There are 52 weeks in a year, right? If you make payments every two weeks, that means that you're making 26 payments a year. With a bi-weekly mortgage plan, you're making a 13th monthly payment every year.

The faster you pay down the interest on a mortgage, the more you will save, and the sooner your mortgage will be paid off. On a $200,000 thirty year mortgage at 7%, you can pay off the mortgage in roughly 24 years, and save nearly $70,000 in interest. (See our bi-weekly mortgage calculator to get an idea of how much you can save).

Not all mortgage lenders allow for bi-weekly mortgages. Some may only allow you to make your mortgage payment once a month.

If that's the case, you have some options. One is to increase the amount you pay on your mortgage each month. Depending upon the lender you have, you may have to write a separate check for the additional payment. If you're able to make an additional payment that's 50% of your regular monthly mortgage payment, you'll actually pay off your mortgage a bit sooner than you would with a bi-weekly mortgage plan.

Another option is to set up a separate bank account, and have your bank make automatic monthly payments to your mortgage lender. Meanwhile, deposit 1/2 of your monthly mortgage payment amount into that account every two weeks. At the end of the year, you'll have the equivalent of a full month's mortgage payment left in your account. Send that amount to your mortgage lender, with a check marked "partial prepayment."

If you don't think you have the discipline to make bi-weekly mortgage payments on your own, or to make additional mortgage payments every month, there are companies that will handle the payments for you. These companies will collect 1/2 of your monthly mortgage payment from you every two weeks, and hold that money in a trust. The company will pay your monthly mortgage payment to your lender every month and then, at the end of the year, will make that 13th payment for you.

Depending upon the size of your mortgage and other circumstances, these companies will charge a flat upfront fee, usually in the range of $200 to $400. They make their profit not only from this fee, but also from the interest they earn while holding your money in trust.

Be cautious when approaching such companies. There are scamsters in the bi-weekly mortgage field. When you're giving a third party your money to pay your mortgage, you're entrusting them to make your monthly mortgage payments on time, and also to not go bankrupt, taking your money with them. Be sure that you're dealing with a reputable company.

A simpler alternative to bi-weekly mortgage plans, or to making additional payments on your mortgage, is to get a shorter-term mortgage. A ten or fifteen or twenty year mortgage accomplishes the same goal as a bi-weekly mortgage: paying your mortgage off as soon as possible, and saving you money in the process.