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In the wake of the worst economic stress experienced since the Great Depression, many homeowners are searching for ways to quickly reduce debt. Bi-weekly mortgage payments can be an excellent way to accelerate the amount of equity you have in your home while at the same time reducing the amount of interest you pay on the loan.

The typical mortgage payment plan is based on monthly payments, resulting in 12 monthly payments per year. With a bi-weekly payment plan, the homeowner ultimately makes 13 payments during a twelve month period, with the final payment going exclusively towards the principle of the loan.

The math is actually quite simple. With a bi-weekly mortgage payment, the homeowner pays half of his monthly mortgage every two weeks. Because there are 52 weeks per year, this results in 26 bi-weekly payments, or 13 full mortgage payments for that year.

While an extra payment per year may not seem like much, because this payment goes towards the principle, the long term savings can be tremendous. For example, on a $200,000 mortgage at 6.5%, the interest paid on a thirty year loan will be just over $255,000, resulting in a final payment over 30 years of $455,000 on a $200,000 loan.

By utilizing a bi-weekly plan, an extra payment is made each year directly to the principal of the loan. This results in decreased interest on the loan, dropping the interest amount to approximately $195,000. The end result is a total payout of $395,000, with a savings of $60,000, allowing the homeowner to pay off the full amount of the loan 6-7 years earlier.

There are several ways to take advantage of a bi-weekly payment plan. For the disciplined consumer, a self-structured plan may be the most effective. To institute your own bi-weekly payment plan, simply divide your monthly mortgage payment in half, and pay this amount to your lender every two weeks.

A word of caution, though: making payments twice per month will not garner the same results as making payments every two weeks. Making payments twice per month results in only 12 full payments per year, whereas making payments every two weeks results in 13 full payments per year. If you decide to switch to bi-weekly payments, make sure your payment schedule is consistent.

Because some lenders have pre-payment penalties, check first with your lending institution to assure that there is no penalty for early payoff of principle. If your lender has no pre-payment penalty but does not allow bi-weekly payments, you can still achieve the same goal. Simply divide the amount of your monthly mortgage payment by 12, and increase each monthly payment by that amount, written on a separate check with a notation that the extra money is to go to principle only.

For those who need a more structured payment method, check with your lending institution to see if they are willing to restructure your payment plan. Many lenders offer an automatic withdrawal option, and can structure your plan so that half of your monthly mortgage payment is automatically withdrawn from your bank account every two weeks.

A third option is to utilize a company specializing in bi-weekly mortgage loans. Beware, however, that they may charge a fee for providing this service. Often, the cumulative amount of the monthly fee negates the benefit of the bi-weekly plan. In addition to this, the fees paid to a lender during refinancing often outweigh any benefit gained by the bi-weekly plan.

One final note: once you've implemented a bi-weekly payment plan, it's always wise to follow up with your lending institution to ensure that the process is being implemented correctly.

Learn more about this author, Melinda Clayton.
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