Tips for Tough Times
Office of the Attorney General, Consumer Protection Division
Issue #67 
What's the Best Way to Save Money on Your Mortgage?
What if you opened your mailbox and found an offer that would allow you to pay off your mortgage years ahead of schedule by making one-half of your normal mortgage payment every two weeks, rather than the normal payment once-a-month? This is exactly the promise being made throughout the country by businesses offering to provide biweekly "mortgage savings programs" to consumers.
And what they say is true. By paying every other week, you really will pay off your mortgage years early and you will save money by paying less interest. But their service isn't free, and there is another, cheaper way to accomplish the same goal without any fees and without locking yourself into an inflexible repayment schedule.
Mortgage Savings Programs
Mortgage savings plans currently being offered to consumers typically allow you to have your bank account debited every two weeks for half of your monthly mortgage payment. If your mortgage payment is $1,200 a month, you would begin paying $600 every two weeks, or 26 payments a year. By paying every two weeks instead of every month, you end up making an extra month's payment each year.
Mortgage saving programs provide discipline. You can't decide to spend that money on something else. But that discipline does not come cheap. Some companies charge as much as $550 to set up the program and $2.50 each time your account is debited.  In addition, since the company collects money from you every two weeks but only applies it to your mortgage on the due date, whatever company is collecting it -- a third-party or your lender -- earns interest on your money. And once you sign up, you must make all of these payments if you want to continue in the program.  If you don't, you will be subject to late fees and your right to participate in the program may be terminated.
The Do-It-Yourself Method
You don't need to pay to set up a mortgage savings plan. You can simply send a bit more money with your regular mortgage payment each month.  Most lenders allow you to designate an extra amount of money to be credited toward your principal.
You can achieve the same results as a mortgage savings program by making an extra payment each year. To do this, divide one month's payment by 12 and add that amount to each month's check. For example, if your regular payment is 1,200 a month, adding an extra $100 each month will allow you to make an extra monthly payment each year. Because paying extra toward your principal ultimately reduces the amount of interest you will pay, you'll end up paying off your mortgage more quickly and paying less than if you had paid it over the original loan period.
One advantage to the do-it-yourself mortgage savings plan is flexibility. If you find yourself short on funds one month, you can make your regular mortgage payment without adding any extra toward principal. The next month you can resume paying an extra amount toward your principal.
Bi-Weekly Mortgage Offers
If you decide to set up a formal mortgage savings plan, choose carefully. Start by calling your mortgage company, which may let you set up a plan directly with it or may have arranged to participate with one of the third party companies. If it is working with a third party company, find out if your money will go directly to your mortgage company, so there is no chance of your mortgage going unpaid. 
If a third-party company is the one debiting your bank account, it will hold your money until your mortgage payment is due and then forward it to your mortgage company.  If it fails to forward the payment, you'll still owe your mortgage payment and will have to send another payment directly to your mortgage company. 
Before you sign a contract with a third-party company, call the Commissioner of Consumer Credit's office at 410-333-6825 to find out if the company is licensed and has a bond, as required under Maryland law. Depending upon the number of accounts being handled by the mortgage-reduction company, the bond, which will not exceed $350,000, may not fully protect all payments it has received from consumers.
Also, make sure that any contract you sign gives you the right to cancel at any time, and that any money that has been debited from your bank account but not applied to your mortgage payment will be refunded to you.  Remember that if you cancel the contract you will not get back the fees you paid to set up the mortgage savings program. 
If you would like to pay off your mortgage early, it will generally be best to pay a little bit more each month using the do-it-yourself method.  This will allow you to see if you can easily afford to pay more money to your mortgage company each month.  If the do-it-yourself method works, you will then have saved the money you would have spent to set up a formal mortgage savings plan.  If you find you can't afford the extra money each month, you can stop and it won't have cost you anything.
