A biweekly mortgage program is an option offered by lenders to allow you to make half your mortgage payment every 2 weeks.  There are 26 weeks in a year, so you end up making 13 payments. That 1 extra payment credited towards principal after many years ends up saving many years off your loan.

I am not a fan of biweekly mortgage programs for several reasons. I feel that people are sold on the idea that it saves them money when for many it ends up costing them thousands of dollars.

Reasons why I feel this way:

• People are overly concerned with paying off their mortgages at the expense of not addressing higher-rate consumer debt. There are other places to allocate your funds which would be more responsible.
• Bi-weekly programs have fees that you can avoid and have the same result doing on your own.

Your mortgage is probably the largest bill in your household and for many, a bill they would like to see eliminated.  It’s for this reason that homeowners are receptive to the idea of paying the debt off early.  The mistake is that people have not addressed basic financial planning priorities before starting a bi-weekly payment plan. The following are things that should be in place and completed before starting an accelerated payment program:

Pay down high rate consumer debt. This means paying down high-rate credit cards where interest is not tax-deductible before paying your low-rate tax-deductible mortgage.

Fully fund your 401(k), especially if your employer is matching your contribution.

Save for an emergency / rainy day. You should have between 3 & 6 months of ALL your household expenses saved in an easily accessible high rate savings account.

If you expect to send your children to college, save using a tax-free 529 college savings plan. As you consider how much you contribute to this fund relative to your retirement savings, remember that your children can borrow for their college education, you cannot borrow for your retirement.

Once the above-noted items are in place and you may want to pay down your loan. Traditional bi-weekly programs often have a set-up fee in the hundreds of dollars and then charge a payment processing fee of $6.00 per withdrawal. These programs require automated payments.  26 annual payments X $6.00 fee is $156 per year.  If the program lasts 25 years that’s $3,900 in fees paid excluding the set-up fee.

Instead, consider the following: Set up auto-pay with your bank.  Look at your monthly principal & interest payment.  Make sure not to include taxes, insurance or PMI expenses in this payment.  Divide the payment by 12 and then add that amount to your monthly payment.

Example:  $2,500 total payment of which $1,500 is principal & Interest; $1,500 / 12 = $125.

Add $125 to your total mortgage payment ($2,500 + $125 = $2,625) and you will make 1 extra payment after 12 months and have avoided the set up & processing fees.

Don Rizzo is President of Sun Mortgage Company, Inc. a licensed mortgage broker in NY, NJ & CT.  Don has been in the mortgage industry since 1987 and is a top-rated mortgage professional.