[tshore]

Is the loan you are talking about a 1st mortgage, or a home equity loan?

Most first mortgage loans work on a "scheduled/scheduled", aka "periodic payment" basis. This means that if your payment arrives before the "grace period" ends (usually about 10 days after the due date), it will be treated as if the payment were made on the due date. The amount of interest accrued will be the "scheduled" amount, and the amount of principal amortization will be the "scheduled" amount. Interest does not continue to accrue during the 10 day grace period. The downside is if you pay a little early, you get no benefit, because the payment will be treates as if it were made on the due date. Most people pay a little late, so most people are in effect getting a "free" few days of interest (which the banks price into their rates). The effect of this is that if you make all of your payments, whenever they actually arrive, the loan will exactly pay down by the maturity date.

Most home equity loans, by contrast, are "daily simple interest", or "actual/actual". Interest accrues from the time of the last payment until the next one is made, with interest accruing each day. If a payment is made a few days early, there is less time between payments, so less interest accrues, and more of the payment is applied to principal, paying down the loan faster. If you pay late, more interest accrues, a little less principal is paid down in each payment, and the loan pays off a little bit slower. For these loans, if you typically pay a few days late, the loan will not completely pay down by the maturity date and there will be a small (maybe $20 on a $100,000 original loan) extra balance to be paid off with the last payment.

If you have a "scheduled/scheduled" type loan it is probably not doing you much good to make biweekly payments as you are doing. The bank is not ripping you off...the loan you have is simply not set up to work that way. My advice would be to take advantage of the effective free float you have: make monthly payments a few days late and they will be treated as if they were made on time. If you want to pay your loan off faster, send an extra check in, maybe every few months, with a note saying you wish to apply the extra amount to principal reduction. The bank should be able to do that, and the loan will then pay down faster.