Biweekly mortgage payments not good for everyone

I wondered: Could this be possible?

The direct-mail solicitation claimed that we could shave years off the life of our 30-year mortgage and save thousands of dollars in interest by making half our mortgage payment every two weeks instead paying once a month. Of course, there was a fee.

But the theory is simple math, really. Paying half your mortgage payment biweekly instead of monthly means you make the equivalent of 13 full mortgage payments in one year instead of 12.

Let's use my current mortgage as an example. We pay about $1,000 a month (12 x $1,000 = $12,000). Split that into biweekly $500 payments: (26 x $500 = $13,000) and we'd be mortgage free in about 24 years and save roughly $40,000.

And you don't have to pay lenders hundreds of dollars for an up-front fee plus a couple of bucks a month to put this math into action. Although most lenders won't accept partial mortgage payments, you can employ one of two free strategies that result in the same financial effect: One is to make an extra mortgage payment per year using a bonus, tax refund or slow-and-steady saving. The other is to make an additional monthly principal payment equal to one-twelfth of your monthly mortgage payment ($1,000/12 = $83.33).

That's what Carin Sanford, a homeownership counselor at Anoka County Community Action Program in Minnesota, suggests. This way, you have flexibility to pay a little extra in the summer, when there aren't high heat and holiday bills to deal with, or at any point when a little money comes your way.

Proponents of formal biweekly mortgage plans argue that most of us lack the discipline to make extra payments and that, in the long run, it pays to pay someone else to do it.

"Biweekly (payment plans) are a great tool for the consumer to use to get the mortgage retired early and build up equity a little quicker," said Dan Mitchell, president of Credo Mortgage in Inver Grove Heights, Minn.

Luckily, not all companies charge a fee. Ann Marie Strong of Rosemount, Minn., recently switched to a no-cost biweekly mortgage program through Wells Fargo. She was thrilled with the idea of paying off her mortgage early with little effort. "We'll be 49 and mortgage-free," Strong, 27, wrote in an e-mail. Be sure to invite me to your mortgage-burning party!

But not everyone thinks aggressively paying off a mortgage is wise, especially for young people in need of financial flexibility who aren't planning to live in one home forever. Others cite the reduced tax benefit that results from paying less in interest payments, which are tax deductible.

Ronny Loew, a mortgage consultant with Charter Funding in Edina, Minn., believes that most people have better uses for extra dough: "You really have to work, first to keep your debt under control, second to have an emergency cash fund, then for future financial planning" for retirement or college for the kids.

"The only reason I would say paying down your mortgage makes sense is if you are not responsible enough to conserve what (money) you're not putting into your home," he said.

Strong and her husband, for example, could invest the extra payment in a higher-yielding investment, adding to the couple's portfolio of retirement investments, mutual funds and individual stocks.

The couple could also pad their existing emergency savings account.

But for the Strongs, emotion trumped earnings potential. "Our planner told us not to pay extra to our mortgage, but the desire to own (our) own home outright is so strong," she wrote.

Ann Marie reminds us of an important point: Money management isn't always about dollars and cents. There is an emotional and psychological element, too. I admit to daydreams of outright homeownership, although it's not a financial priority right now.

If you're saddled with credit card debt or are living paycheck-to-paycheck, don't accelerate your mortgage payments. But if you're debt-free, have a well-balanced savings plan and the thought of being mortgage-free makes you giddy, then why not?