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Are bi-weekly mortgage payment programs a good deal? Curious....

Posted by: John Ewoldt under Financial Planners Updated: August 16, 2010 - 9:44 AM

You can pay off your mortgage faster if you make half a house payment every two weeks instead of once a month. Third party organizations and some mortgage companies also allow you to do this but they charge extra for it.

I'm curious if anyone out there already has a mortgage acceleration plan on their house. I assume that you signed up because if you pay your mortgage bi-weekly instead of monthly, you can shave about 8 years off a 30 year mortgage.

The problem with these programs is that too many of them charge transaction fees for each payment as well as an initial admin. fee of several hundred dollars.

But one big reason to avoid the mortgage acceleration programs is that you can slash the same eight years off your 30-year mortgage by making one extra mortgage payment at the end of each year, applied to principal.

Some people still prefer to pay for a mortgage acceleration plan because they don't have the discipline to make that extra payment. Even then, those "undisciplined" spenders should ask their mortgage company to increase their monthly payment by 1/12. It's the equivalent of the extra annual payment. Just like any payroll deduction, you don't miss it when it's automatic. Should you get in a bind, you can always tell your mortgage company to go back to your original payment amount.

For example, say your house payment is $1,700 per month. You could ask the mortgage company to take out an extra (1/12), or $142.66 per month for a total of $1841.66. Now you're making the equivalent of an extra payment per year.

Let me know if you have done some sort of a mortgage acceleration payment program. Reply on the blog or email me at jewoldt@startribune.com.

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