Yesterday we talked about the Home Acceleration Loan as a strategy to help you pay off your mortgage early. While it is a great strategy for savvy investors, there are other techniques that require much less work and provide you with greater flexibility. One of those strategies is using biweekly payments to help you save thousands in interest charges and significantly decrease the term, or amount of time, of your loan.

The idea is pretty simple. Your current loan more than likely requires that you make a payments once a month, which results in 12 payments over the course of a year. If you changed your auto-pay to making a payment every two weeks instead, you end up making 26 payments, or 13 payments over the course of the year when you compare apples to apples. At the end of this piece I will demonstrate using a mortgage calculator how much money you can save on your mortgage over the life of your mortgage. The benefit of this approach is that you can always switch back to making one monthly payment if money gets tight in your home.

Of course, I am going to assume you refinance your loan or you have just bought a new home. The principal will be $200,000, the term 30 years (or 360 months), and the mortgage interest rate will be 4.25%. If you are serious about this approach, please check with the company that holds your mortgage to make sure they allow biweekly payments. Also ask to see if they will immediately credit your payment to your mortgage or you will be unable to see the savings associated with this strategy.

How does it work? This approach is very simple. Everyone knows what day of the month their mortgage payment is due. Sit down at your computer and set your autopay to make a payment for half of the amount due every two weeks. It really is that simple. Some lenders do offer a structured biweekly payment plans, and most will allow you to transition to this payment schedule. Some do charge a fee of up to $400, so make sure you ask if there is any type of charge. The result is that you will be making 13 payments instead of just 12 during the year. What benefits do you get from this type of approach? Let me show you.

I used the mortgage calculator at bankrate.com (click here to imput your information and see what money biweekly payments will save you) using the example above. The payment if you make 1 payment each month is $983.88 and $491.94 if you make biweekly payments. Over the life of the loan, there is a significant difference in the amount of time you will be paying on your loan. The results are found below…

According to the results, with the single action of making a biweekly payment instead of a monthly payment, you can save $26,109.41 and shave five years off the term of your loan. Your 30 year loan becomes a 25 year loan with this single action.

Should you use biweekly payments? While it seems like this is a no-brainer, but there are other options for your money too. Instead of paying $983.88 extra towards your mortgage, you can also save and invest that money. So let’s test that theory and find out what is best — making biweekly payments or saving that money.

We are going to assume you are in your home for the long haul. To be frank, if you are in your home for 5 years or less, this strategy makes no sense. As part of my discussion, I will ignore the myth of the long-term benefit of the mortgage interest deduction.

So let’s assume you will pay off your mortgage five years early. At the end of the 30 year period, what would be the difference in the total amount in a savings account at 4.0% interest if you saved $983.88 each year and if you made biweekly payments and save the $11,806.56 for the five years when you should have been making your mortgage payments? Let’s look at the totals:

Here is the calculation on saving $983.88 per year with no biweekly payments:

And here is the calculation assuming you save $983.88 per month, or $11,806.56 per year for the 5 years you would be making a mortgage payment, assuming you made biweekly payments for the life of your loan:

The difference between the two will be $8,352.88 more in your saving account if you make your biweekly payments and then choose to save that money once your mortgage is paid off. If you ask me, making biweekly payments on your mortgage makes sense in the long run. While it is not the strategy I follow, if you can afford it, I would suggest you take a hard look at implementing it.