Forget biweekly, just pay extra principal

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.

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