You've surely seen the offers of "tremendous savings" if you set up biweekly mortgage payments and asked "Are the savings for real?" The simple answer is "Yes," but a complete answer requires a deeper investigation.

For a $150,000 mortgage with a 5% interest rate, if you pay half your mortgage every other week, you can shorten the loan term by about 5.5 years and save $29,386 in interest payments over the life of the loan. Sounds appealing, here's how it works.

Normally, you pay your mortgage once a month, twelve payments a year. If you pay biweekly, you make 26 half payments, and that's equivalent to thirteen mortgage payments or one extra mortgage payment every year. That extra payment reduces your loan balance. Because you pay interest only on the remaining loan balance, a smaller balance results in less interest and a quicker payoff.

Biweekly mortgage payments are attractive because they match biweekly paycheck schedules. However, most lenders will not accept biweekly payments. (Try it, and the lender may mail your half-payment back to you.) Even if your lender doesn't have a biweekly payment program, you still can achieve savings with one of the following options.

• Google "biweekly mortgage service" and you'll find companies that provide biweekly payment programs. They deduct half payments from your checking account every two weeks (to coincide with your pay date) and make your mortgage payment at the first of each month. After a year they will have deducted enough to make that extra mortgage payment. For this service most charge a setup fee and a transaction fee for each deduction. Really, they are charging you for convenience (and forced discipline), as you can do all this on your own.

• Do it yourself by adding an extra amount to your mortgage payment each month. (Divide your mortgage payment by 12 to compute the extra amount.) Be sure to add a note that the extra is to be applied as a principal reduction. For real convenience, set up two automatic deductions from your bank account that go directly to your lender. One deduction is for your monthly mortgage payment. The second deduction is the extra amount, one-twelfth of your payment. Add a note to the second deduction instructing your lender to apply it as a principal reduction.

• Put a portion of each biweekly paycheck in a special savings account. Divide your mortgage payment by 26. Put this amount into the savings account from each paycheck. If your employer offers direct deposit, they may be able to split your paycheck between your checking and savings account. You can send the funds in this account to your lender each month or on a schedule that is convenient for you. Make sure you add a note instructing the lender to apply the funds as a principal reduction.

• If you receive a bonus or tax refund each year, add the equivalent of one extra payment to your mortgage payment when you receive the money. Again, instruct the lender to apply the funds as a principal reduction.

This latter method (making an extra payment at the end of the year) creates less savings than adding extra to each monthly payment because interest is computed on your remaining loan balance. With the once-a-month method, you reduce the loan balance more quickly, every month as opposed to once a year. In our example above, your payoff would be about 10 months longer.

Another interesting quirk is that the savings are greater at higher interest rates. For example, if our $150,000 mortgage has an 8% interest rate, making the same principal reduction each month shortens the loan term by 6.4 years and saves $62,950 in interest payments. (Of course, the total interest paid is still much higher because the interest rate is higher.)

You can try all this yourself on my Lone Star Lending web site. Click on the "Calculate Payment" button on the left side of the screen.

Finally, check with your lender before you send a principal reduction payment. The lender may ask that you note the extra payments in a special way. It's better to get it right than to track down a lost payment. Also, make sure your mortgage doesn't have a pre-payment prohibition that would preclude principal reduction payments.