The offers have proliferated the Internet, through junk mail and elsewhere, and now even top-tier mortgage companies sell biweekly mortgage prepayment plans as a way to save thousands of dollars in interest.

But slapping big-time names on the biweekly plans hasn't changed their basic benefits and drawbacks, finance experts say. As always, they argue, only homeowners who lack the initiative to consistently send their lenders extra money stand to benefit, because the rest can save on their own.

"In this whole prepayment arena, the one thing that has always perplexed me is people who participate in prepayment plans," says Steve Rhode, president of Debt Counselors of America. "They pay $300 upfront just to get in a prepayment plan when it's something that they can easily do themselves."

A thrifty move
The motivation for prepaying is simple -- it saves money.

With a 30-year fixed mortgage for $100,000 at a 7 percent interest rate, a borrower would have monthly principal and interest payments of about $665, and pay $139,508 in interest over the life of the loan. By adding $25 a month, the same borrower could shorten the term by just over three years and save about $18,214 in interest. Sending in even more, like an extra $200 every 30 days, would save $72,695 in interest, and the loan would be paid off in about 16 years.

But not everybody is up to the challenge of devising their own prepayment schedule and sticking to it, experts say. For some, the paycheck burns right through their pocket. Others don't want to bother with figuring out their potential savings and paying what amounts to an extra bill each month. As a result, lenders, independent merchants and mortgage servicers, who take over billing and other tasks after loans are initiated, tout biweeklies.

"They are for customers who want more of a structure and discipline," says Marcy Knee, director of optional products and services for Principal Residential Mortgage Inc. in Des Moines, Iowa. The company offers the BiSaver Mortgage Payment Plan to people whose mortgages it services. 

By using the plan, for example, a Principal mortgage holder could outline a schedule that would pay off the house before the first child went to college, she says. They also would have control over how much or how little extra they wanted to send in, as long as the basic monthly payment was covered.

How it works
The plans essentially operate the same way regardless of who's advertising them. Instead of the standard one-month-one-payment schedule most borrowers are used to, they require a check or electronic transfer of half the monthly payment from a customer every two weeks. At the end of the year, the plan operators typically take the extra money that results from the process and send lump sum payments to the participants' lenders.

Instead of 12 monthly payments of $665, or $7,980 a year, on the 30-year mortgage, the borrower would make 26 biweekly payments of $332.50, or pay $8,645 annually. As a result, total interest would shrink by $34,130 and the loan term would shorten to less than 24 years.

The plans differ from mortgages that customers initiate on a biweekly basis, however. In such cases, lenders collect biweekly payments from the get-go, and customers must make them to avoid defaulting.

There are big players in the field
Anyone who wants to set up biweekly payments later through a plan probably won't be disappointed, because several of the largest mortgage companies have gotten into the game by contracting with third-party plan operators. Principal introduced its service in 1997 after studying the issue for about a year and a half, according to Knee. The company's partner is Douglas-Michaels Co. of Springfield, Va.

And just over three years since First Union Corp. decided to enter the business, the company has enrolled 21,203, or 2.6 percent, of its 809,000 mortgage customers. It offers a plan by Aegis Mortgage Acceleration Corp. of San Francisco, according to Karin Patrick, a senior vice president for First Union Mortgage.

Countrywide Credit Industries Inc., the parent of Countrywide Home Loans, is also studying ways to handle and process biweekly payments, spokeswoman Jumana Bauwens says. The Calabasas, Calif.-based company hasn't decided whether to start a standard biweekly plan, offer a third-party service or come up with some other way to accept payments every two weeks, but something probably will be announced early next year, she says.

The fee structure
Operators usually charge a few hundred dollars to set the plans up, and a processing fee for each payment.
Principal's plan costs $379 to establish and $1.25 per payment, Knee says. U.S. Mortgage Lenders Inc., which sells its "Equity Acceleration Plan" through independent representatives, charges $275 to $375 upfront and $2 to $3 a transaction, according to agent Kevin McLaughlin, president of Chesapeake Enterprise Services Inc. in Arnold, Md.

And First Union customers can choose to pay either $295 upfront and $5 a month, or just $9 a month, to use the system, which permits only electronic payments -- no mailed in checks, says Bill Grant, Aegis' vice president of marketing. The program also lets people split their payments into four weekly installments if that better coincides with their employers' pay schedules, and applies the minimal interest earned on payments before they're due toward the mortgage balance.

Given all the costs, consumers can end up paying as much as $72 a year in recurring fees on top of the set-up charge. That adds up to $2,085, even after allowing for the shortened loan term.

"These plans, if legitimate, will save you money," says Marc Eisenson, author of the prepayment guide, The Banker's Secret. "What they won't do is save you as much money as you'll save on your own. They will cost you a lot of money in fees, and tie you to a program that may not always work for you."

Do it yourself
Eisenson recommends borrowers divide their monthly payment by 12 and just send in the extra each month as a prepayment, and even the companies that sell the plans admit people can cut interest costs on their own. Yet they stress that some customers enjoy the convenience of having someone else handle the details of moving their money electronically from a designated account.

"There is nothing to prevent an individual from doing it on their own, provided the bank will accept the check, and that the bank will apply that payment to principle rather than to interest," McLaughlin says. "But if they're doing it on their own, they kind of have to keep a close eye on the bank."