Biweekly payments, equal to one-half of your monthly payment, are electronically transferred from your chosen checking or savings account to a holding account marked for your use and your use only. The transfer is made through the Federal Reserve System's automated bank in the U.S. Since the biweekly transfer from your bank translates into 26 half payments each year, the structure of our biweekly system creates a thirteenth payment each year.
Each month, at least four days prior to the due date for your loan, a check is automatically created from the holding account and sent to your lender to make the monthly payment. These automatic payments eliminate the need for your to write monthly checks.
At the end of each 12-month period, the funds accumulated on your behalf in excess of your scheduled monthly payment are paid to your lender to reduce your principal balance. These extra payments are how the payoff of the mortgage is accelerated. For example, on a $100,000, 30-year mortgage at 10.5% interest, you would save $82,104 in interest and pay off your mortgage more than nine years earlier than originally anticipated.
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