Bi-Weekly Programs

Making bi-weekly (ocurring once every two weeks) payments can shorten the life of your mortgage and reduce your interest expense over the life of the loan. Instead of making a full payment every month, you make a half payment every two weeks. Since there are fifty-two weeks in a year, you make twenty-six half payments, or thirteen full payments. As a result, you are making one extra mortgage payment per year. Making bi-weekly payments can reduce the term on a thirty-year, fixed loan to approximately twenty-two years.

There are several ways to implement a biweekly program:

1. Contact your lender. See if they offer a bi-weekly program.
2. Locate a company that helps borrowers make bi-weekly payments. The company will deduct payments from your bank account every two weeks, but will only pay your lender once per month. The disadvantage is that you loose interest on your money that you otherwise would have made. The advantage is that it is convenient and automatic. Be sure to fully investigate the company's credentials. There have been scams reported in the industry.
3. Do it yourself. Open a bank account and make bi-weekly deposits. Each month, pay your lender from that account. You will earn interest on the money in your account.
4. Make monthly pre-payments. Increase the amount you pay each month by one-twelfth (8.33%). By increasing your mortgage payment by just over 8 percent, you shorten the life of your loan and save money effectively the same as you would with a bi-weekly loan.
   

Ask yourself some questions before committing in writing to a bi-weekly program. Remember, any loan is potentially a bi-weekly loan. If you have the discipline to make the extra payment per month or per year, why enter into a written agreement or pay someone to help you? If you use a third party to help you, ask what their set-up and monthly servicing fees are, then determine what you're really saving.