Does Paying your Mortgage Biweekly Save You Money?

My mortgage-holder, Citibank, often mails me with this offer: the BiWeekly Advantage Plan. For a one-time fee of $375 and $1.50 each payment, they will basically split your usual monthly payment in half and make a payment every two weeks, coinciding when you get paid from your job. The savings are real- on a $250,000 mortgage at a 5.75% rate, you can reduce your 30 year mortgage by more than four years, thus saving you over $45,000 in interest. I’m sure most other large mortgage companies have similar plans.

So why shouldn’t every homeowner pay the fees and do something like this? Because you can do the same thing yourself without paying the fees. The savings occur because you’re paying every 2 weeks, which means the 26 half-payments are equal to 13 monthly payments. So you can realize nearly the exact same savings just by making one additional monthly mortgage payment per year. Or, on a monthly basis, divide your usual payment by twelve, and add that to your usual payment. And you just saved yourself the $375 initial fee and the $39 payment fee every year.

Of course, if you want to do this yourself you must be a dedicated practitioner. If you lack the willpower to actually make that extra annual payment but still do want the savings, maybe a program like this is worth the money. Personally, I’m not yet ready to put much extra into my mortgage payments, but as my salary rises I definitely plan on doing so (without using a program like this).