Forget biweekly, just pay extra principal
By Don Taylor, Ph.D., CFA, CFP · Bankrate.com

http://www.bankrate.com/nltrack/news...payment_a1.asp

Dear Dr. Don,
I asked my bank if I could set up a biweekly payment for my house and
they said that they do not offer that program. I also indicated that I
would like to pay more principal but they said that it would just sit
in the account and not go into affect.

Is this legal or is there something I can do to accelerate my mortgage
payment? I do not want to go to another bank because I have a 4.5
percent loan rate and I only have 12 years to go. Thanks.
-- Manny Mortgage

Dear Manny,
I'm not a fan of biweekly mortgage payments. They don't do much for
you, and they tend to cost a lot in fees and expenses. You can do as
well on your own by making an additional principal payment each month
with your current mortgage.

You definitely don't want to refinance your 4.5 percent mortgage in an
attempt to find a way to pay off the loan in less than 12 years. I
think you're confusing the bank's response on the biweekly mortgage
with your ability to make additional principal payments on your loan.

It's likely the bank was telling you that making additional principal
payments every two weeks isn't going to help you reduce your interest
expense within the month because they only credit the payments
monthly. That's different from telling you that you can't make
additional principal payments on your loan.

Ask your bank what would happen if you made an additional principal
payment each month on your loan. Your monthly loan payment wouldn't go
down, but you would shorten the life of your loan.

To see what happens, input your loan balance, interest rate and
remaining loan term into Bankrate's Mortgage payment calculator. You
can then add a monthly additional principal payment to that payment
and see how it changes the life of the loan.

Adding one-twelfth of your monthly payment will roughly equal what you
could do with a biweekly mortgage payment without all the fuss and
bother of setting up a biweekly payment. See this earlier Dr. Don
column, "Little advantage to biweekly payments," for more details.

To ask a question of Dr. Don, go to the "Ask the Experts" page, and
select one of these topics: "financing a home," "saving & investing"
or "money."