If you own your home, the recent mail may have brought an enticing offer from a third-party middleman or perhaps from your mortgage lender. Here's the usual gist of the offer: Sign up for biweekly or semi-monthly rather than monthly mortgage payments. With a bi-weekly plan, your client will see an automatic withdrawal from their bank account of choice every other week. These withdrawals will be for half of a monthly mortgage payment amount. Because these withdrawals are occurring bi-weekly, additional prepayments will be made to the principal balance. This happens because there are 26 bi-weekly periods during the course of a year, roughly equal to 13 monthly payments. These prepayments are applied to the client’s principal balance in the following month to ensure maximum savings.

Can such plans really help a homeowner "build equity twice as fast," "reduce their loan by 7 to 9 years," "eliminate the PMI in half the time," and "simplify their budget"? How can you help your clients evaluate plans that might actually help save them money?

If the homeowners mortgage lender allows bi-weekly principal payments or prepaying the mortgage without penalty, then paying principal at bi-weekly intervals can reduce the amount of principal owed more quickly and, as a consequence, reduce the length of the loan and amount of interest paid.

There are tangible benefits to building up equity at an accelerated rate through prepayment. Homeowners can tap their equity for loans to finance a child's college education, etc. Unlike other types of personal loans or credit cards, the interest on home equity loans remains tax-deductible.

* PUTS YOU IN CONTROL - When paying by the lender's schedule, the homeowner pays mostly interest up front for years, and the lender is in control. When your client makes the decision to prepay, more principal is paid up front SAVING thousands of dollars. The entire process is reversed.

* REDUCED TERM – The mortgage term can be reduced by as much as 1/2, paying it off way ahead of the lender's schedule. Therefore, a shorter-term mortgage is created without the tougher qualification requirements of a new loan.

* BUILDS EQUITY FASTER – Your client’s home equity will grow much faster, giving them much more buying and borrowing power.

* BUILDING FINANCIAL SECURITY VS FINANCIAL BURDEN - Prepaying a mortgage will change the way the homeowner views their home. They will see it as a means of building financial security rather than a financial burden. One of the safest places to invest money is in real estate. A home can become their most secure investment.

* TAX BENEFITS REMAIN - Last, but not least, prepaying the home mortgage DOES NOT eliminate the tax benefits of home ownership.

With mortgage interest rates dropping significantly, many homeowners are wondering if they should (1) go through the refinance hassle or (2) make extra mortgage payments to pay off their home loans early and save thousands of interest dollars.

Look at extra mortgage payments as an investment. Another way a homeowner can speed up ownership is to make extra mortgage payments on their mortgage. The best way to view extra monthly mortgage payments is as an investment. Whether your client has an extra $50, $100 or $500 each month to pay down their mortgage balance, consider it an investment at the mortgage's interest rate, typically 6, 7 or 8 percent. Help them to consider their mortgage prepayment as an investment at whatever mortgage interest rate they have.

There are many ways to begin offering this program. If you are a homeowner, enroll your own home. This way you can tell your customers how well the service is working for you. You will also want to offer this program to friends and relatives. They will see the benefits of paying off their mortgages 8 or more years earlier and saving thousands of dollars in interest.

Your current line of business will help you determine the best way to present this service to your past, present and future clients. If you are in the mortgage business, you can present the biweekly service as an “add-on” to your current sales activities. Using a biweekly mortgage calculator, you can show your clients the “effective interest rate” by adding this information to your proposals. The lower rate can be a significant advantage over your competitors and will help your customers make the decision to choose your product offerings over theirs.


Article submitted by Richard Larimer. Rich is the CEO of Champfund Mortgage and can be reached at rlarimer@champfund.com

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