A popular question we receive is “Can I enroll in biweekly mortgage payments after closing on our mortgage?”.  This is a loaded question.  Borrowers usually choose “no”.  Transaction costs or budget stress are popular reasons to avoid biweekly payment plans.  So let’s explain the ins and outs of bi-weekly mortgage payments.  The goal is for borrowers to save mortgage interest by paying off the mortgage in a shorter term without the costs.  [av_button label=’Read the best ways to pay off your mortgage early’ link=’manually,http://teammovemortgage.com/blog/2015/05/31/ways-to-pay-off-a-mortgage-early/’ link_target=’_blank’ size=’large’ position=’center’ icon_select=’no’ icon=’ue800′ font=’entypo-fontello’ color=’theme-color’ custom_bg=’#444444′ custom_font=’#ffffff’]

How does a Biweekly Mortgage Calculator Work?

Biweekly payments may have other names such as an equity accelerator.  Typically after closing, borrowers are flooded with offers to pay off the mortgage quickly.  Most offers come from third parties who search public records for new mortgages.  Here are typical characteristics of biweekly mortgage plans:

• Potential Up-front charge of $295 – $400
• Possible payment draft fee.  These add up over time!
• Half of the total mortgage payment is drafted out of the borrower’s bank account every 2 weeks.  Not twice per month.
• Biweekly = 26 payment drafts. Bimonthly = 24 payment drafts
• Half the mortgage payment is collected every 2 weeks
• Full payment is paid monthly to mortgage company by biweekly company
• One extra full payment is sent to mortgage company annually

So basically the program will draft half of the mortgage payment every 2 weeks.  The company holds the borrower’s funds in an account.  Then each month a full mortgage payment is made to their lender.  After a year, there are 2 extra half payments in the borrower’s account with the biweekly company.  Finally, the company will send the extra funds to the mortgage lender as an extra principal payment.

Don’t get us wrong.  This will save the borrower lots of interest over the life of the loan, but there is a free alternative!  Did you catch how the extra principal payment came about?  Biweekly means 26 drafts of half the mortgage payment.  Twice per month would be 24 drafts.  Therefore, since the program drafts 2 extra times per year, the result is one extra full payment available.  The borrower is shown that for a small fee and just drafting out the payment, there will be tens of thousands of dollars in savings.

Is this true that this system will pay off a mortgage early and save a lot of interest?  Yes it is true, BUT…

Consider these tips for Biweekly Mortgage Payments

Taking 2 half payments every 2 weeks instead of twice per month means there will be 2 months when there will be 3 half payments collected.  This can bust a budget.  Consider if your budget can handle this large extra payment twice per year.  So the end result is one extra principal payment collected per year.  In the end, it costs several hundred dollars up-front plus a potential biweekly draft fee to accomplish the savings.  But, you can do the same thing for FREE just by paying one extra principal payment per year.  You can pay this directly to your mortgage company for FREE!

Why Should I Consider a Biweekly Mortgage Payment Plan?

Now, there are times this program makes sense.  First, if your mortgage company offers this service with no fees at all, that is worth considering.  But ensure the 2 extra half payments won’t hurt your budget.  If these apply, this could be worth considering.

It could still make sense to pay for this product though.  If you really want to pay off your mortgage early to save a lot of interest, yet feel you would not have the discipline to do it and the fees are worth it to you, then maybe consider the program.

Just keep in mind to review the fees!  Just recently 2 companies were charged $38 million in total charges for allegedly steering consumers into a mortgage payment program that cost them millions of dollars in fees at $295 up-front and $2.50 per deduction.   Even worse, sometimes bi-weekly mortgage payment companies don’t make the mortgage payments on-time or pay the extra payments as they are supposed to.

[av_button label=’Learn Great Ways to Pay Off Your Mortgage Early & Save a LOT of Money!’ link=’manually,http://teammovemortgage.com/blog/2015/05/31/ways-to-pay-off-a-mortgage-early/’ link_target=’_blank’ size=’large’ position=’center’ icon_select=’no’ icon=’ue800′ font=’entypo-fontello’ color=’theme-color’ custom_bg=’#444444′ custom_font=’#ffffff’]

Follow our writer, Russell Smith, on ActiveRain.  ActiveRain is a site that real estate professionals, buyers, and sellers may use to gain helpful knowledge.