Borrowers using automatic debits from their checking accounts to make their mortgage payments frequently ask about biweekly payments. Many people get paid every two weeks and like the idea of making one-half of their mortgage payment every two weeks, rather than the entire payment once a month. The benefit to doing this is to reduce the term of the loan by paying down the principal sooner because they will thus make 13 mortgage payments per year, not 12. For example, a 30-year loan might be paid off in approximately 20 to 24 years.

Biweekly payments may not be available through all mortgage servicers. Fannie Mae will buy biweekly loans, but the interest rate will be higher than with conventional, once-a-month payments; in fact, many mortgage providers do not offer the biweekly program in order to provide lower rates to borrowers. Not having this program available is, realistically, a non-issue because a borrower can make one additional mortgage payment per year and essentially accomplish the same benefit in reducing the term of the loan.

Another way this can be done is to divide the monthly principal and interest payment by 12 and add that to each month's mortgage payment. This will generate one additional payment per year with similar results. Using this scenario, the borrower has more control and greater flexibility and can stop that additional 1/12 payment in any month if he chooses.

You can also use the services of a third party to make the biweekly payments for you. I have recently received offers from two different companies that are offering this service and I am very wary. One of the fliers attempts to make it appear that they are a well-known bank (they are not), and offers assurance that they are "licensed & bonded," in Texas, whatever that means. Here is how they work: you allow them to debit your account every two weeks to make your biweekly payments. Most likely, they will make your mortgage payment once a month as agreed on your note. At the end of the year, they will make one additional payment.

Nothing that smacks of genius here, is there? How do they make money? There may be a fee for this not disclosed in the advertising pieces I received. Since the mortgage payment is due on the first of each month, they would have to collect the amounts to pay in advance, and then can use this money in an interest-bearing account until the payment is due (this is called "the float" in banking). You, as the borrower, are responsible for making timely payments. If the third party fails to make any of the mortgage payments on time, it is your credit score that will get incinerated. If the third party uses poor judgment in investments and fails to have the funds to pay as promised - or worse, decides to run to a friendly dictatorship with the collection of money from 5,000 participants - you won't know that your mortgage hasn't been paid until you get a letter telling you that your account is past due.

Why accept this risk when you accomplish the same thing as easily yourself? To quote Forrest Gump: "Stupid is as stupid does."



David Hultin (505-946-2521) is a residential mortgage-loan officer for New Mexico Bank and Trust. He previously worked in the mortgage divisions of two of the largest banks in the United States.