Trim years off mortgage without paying any fees

During a recent mortgage loan application process, my loan officer mentioned biweekly payments. I assumed such mortgage acceleration programs had died out in the '90s. Back then, homeowners were excited about being able to trim about eight years off a 30-year mortgage simply by dividing a monthly payment in half and paying every two weeks. Banks and third parties charged an initial fee of about $300 and a transaction fee for each extra payment.

The mortgage acceleration programs fell out of favor when consumer groups alerted the public that borrowers could accomplish the same benefit of biweekly payments by making one extra payment applied to the principal every year. (There are 26 two-week periods in a year, so 26 half-payments equal 13 whole payments.)

Homeowners without enough discipline to make a 13th payment every year, for example, also can ask their mortgage companies to increase the mortgage payment by 1/12th to accomplish the same thing. For example, a person with a mortgage payment of $1,700 can ask to have the payment increased by $142 per month ($1,842) to make essentially one extra payment each year. If borrowers get into a financial bind, they can return to the original loan payment schedule.

Maybe we shouldn't be surprised that many banks and third-party organizations still offer accelerated loan programs but with annoying fees that eat into your savings -- with one surprising exception.

Wells Fargo rarely blinks at dinging consumers for extra charges and recently lost a court ruling over excessive overdraft fees, yet it does not charge extra for its "preferred payment plan" options. Customers with a loan from Wells Fargo can apply for the program. Just as remarkable as the no-fee program, a checking account, which is required to sign up, can be from any bank, not just a Wells Fargo account.

U.S. Bank, on the other hand, charges an initial fee of about $295 and $5.42 per month for drafting fees. With a $250,000 loan at 6 percent, borrowers would pay about $1,500 in fees over the course of 24 years, according to U.S. Bank, but save about $52,000 in interest and cut six years off the mortgage with their biweekly payment plan.

It's a good plan, but the savings could just as easily be accomplished by making the 13th payment, saving a consumer $1,500.

The answer is no. Nearly all mortgage companies credit the mortgage account only once a month, even if payments are made twice a month. So how can the consumer be saving so much money? With biweekly payments made every two weeks, there are two months of the year when three payments are made, or the equivalent of a 13th payment or two extra half-payments.

Consumers can pay even more for the privilege of paying their loan down faster. One company, United First Financial (www.unitedfirstfinancial.com), charges $3,500 for software that shows the user how to make extra loan payments over time. It teaches a family how to bank like a bank, floating debts interest-free for as long as possible without incurring interest before paying them, according to UFF.

Not everyone believes that paying off a mortgage early is a good idea. Some financial planners suggest putting the extra money into investments instead to maintain the tax deductibility of mortgage interest. Check with a financial adviser for the best options based on your debt, savings and goals.

To find out how much interest you save and how many years you can shave off a mortgage with extra payments, try a free website such as Bankrate (www.bankrate.com) or Mortgage Calculator (www.mortgagecalculator.org). To find out about a mortgage acceleration program, check with your mortgage company or bank.