Bi-weekly Mortgage Payment - What to look out for

In my last post I told you how I was saving thousands of dollars by switching my monthly mortgage payment into a bi-weekly payment. I did this over the phone with Wells Fargo and it was extremely easy. There was no fee to switch, and they said if for any reason it didn't work for me I could switch back. Right now it should work great as I have my payment set up on the same schedule that I get my paycheck. But if my work doesn't pick up and I end up getting laid off, I can always switch back.

It sounds great, right? But as some of my commentors noted you have to be careful when doing this. There are some things to watch out for.

- In order to build equity quicker you must have a lender that will credit each half payment when it is received. If your lender waits to the second payment before crediting your account you will never see the benefit.

- Many companies will charge you a fee for changing to a bi-weekly payment. Then they only pay your lender once a month which means your extra payment doesn't get applied until the end of the year. During this time the company is earning interest off your money, plus charging you a fee.

- The bi-monthly mortgage is not the same as the bi-weekly. With a bi-monthly you pay half your payment twice a month as opposed to every two weeks, so you don't end up making an extra payment. You end up saving only one months interest over the course of the loan instead of 6 years interest.

If your lender charges a fee to change to a bi-weekly payment, you can achieve the same benefits yourself a couple different ways. You can make one additional payment at the end of the year. The problem here is you have to come up with a large lump sum of money. Another method is to pay an extra 1/12th of your monthly payment each month. For example if you have a $1200 mortgage payment you'd pay $1300 a month, with the extra $100 being paid to the principal.

I strongly recommend making extra payments to your mortgage principal whenever possible. I know some people think it's a bad idea to pay off your mortgage early because of the tax write off, but I disagree. Any money that I might save on my taxes doesn't compare to the freedom I will feel when my mortgage is gone. For most people a mortage is 30-40% of their monthly expenses. How great would it be to have that extra 30-40% in your pocket each month? If you need help coming up with the extra money to help pay on your mortgage check out my post Sell Your Way Out of Debt.

I have around 22-23 more years to pay on my mortgage. That may seem like a lot, but until last week it was 28 more years, so that puts a smile on my face. How many more years do you have left on your mortgage?