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What are Mortgage Accelerator Programs?

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Mortgage DeedA mortgage accelerator program is a fancy name for a program that promises to help you pay off your loan faster than you would making regular monthly payments. With the recession and with falling housing prices, advertisements for these types of programs are popping up everywhere. The real question, though, is whether they work and I have to go back to a tried and true adage – “If it sounds too good to be true, it probably is.”

These programs promise to help you pay off your loans in half the time. Half! They remind me of those ads where someone with $150,000 in IRS tax debt gets it renegotiated down to $50 (you know those ads right?) or how $10,000 in credit card debt was settled for $150 and a high five. They smell like scams but if we just left it at that, we wouldn’t really know the real answer right? (this is how debt settlement works, it’s not necessarily a scam but it’s very very dangerous)

So let’s find out what mortgage accelerator programs are and whether they’re scams.

Mortgage Accelerator Programs

After a little bit of research on the web, it’s pretty clear that most mortgage accelerator programs are not necessarily scams, they’re just overpriced programs designed to automate something you can do yourself. The idea behind a mortgage accelerator program is that you should make mortgage payments every two weeks, instead of once a month. This accomplishes two things:

  • With 52 weeks, you make 26 half-mortgage payments… which adds up to 13 actual mortgage payments. That’s one additional mortgage payment per year.
  • By making biweekly payments means interest accrues a little slower. It’s a small difference, much smaller than the extra mortgage payment each year, but a factor.

So you won’t pay your 30 year fixed mortgage in 2 years, but it certainly will be finished earlier than 30 years. The rub with mortgage accelerator programs is that you will have to pay them a fee to set this up for you. That fee will not be a small one and when you look at the do-it-yourself alternatives, I think you’ll agree it’s better to put that fee towards your mortgage.

If you want to read more about it, check out Dan Melson’s great writeup of mortgage accelerator programs. Dan knows his stuff so if you want the dirty details, that’s where I’d go to read more.

DIY Mortgage Accelerator Program

So you want to roll your own mortgage accelerator program but think paying someone a few hundred bucks sounds absurd? Excellent, fortunately it’s very easy. Just try one of the following:

  • Ask your bank or loan servicer if you can go onto a bi-weekly plan. They may do it for free or they may charge you for this service. Either way, it’ll probably be cheaper than some third party mortgage accelerator plan.
  • Pay more than the minimum to help pay down principal. We add around $200 to our mortgage payment each month to help pay down the principal just a little bit faster. It’s an amount that we’ve increased each year to reflect pay increases and inflation. It actually works out to more than one extra mortgage payment a year (our is around $1300 a month) so it’s in a way better than the biweekly strategy.
  • Send in a payment. The bank won’t turn away money, I guarantee you that, so why not send in a payment and tell them you want to put it towards the principal. Your monthly payments won’t decrease but the length of your loan will.

Two things to be aware of if you go this route – double check that there are no prepayment penalties on your mortgage and, if you do send in an extra payment, indicate that you want it to apply towards the principal. Loan companies, most by default, will apply it to the next payment because that’ll earn them more interest.

I’m a big fan of doing things yourself where it makes sense and this is one where it makes perfect sense.

(Photo: revdancatt)

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41 Responses to “What are Mortgage Accelerator Programs?”

  1. Seth @ Boy Meets Food says:

    I think it kind of goes without saying, but the extra payments should only be made if you are already contributing to a Roth/401K, and have a decent EF.

    For anyone who hasn’t used them before, do yourself a favor and download a mortgage amortization schedule! It’s amazing to see what happens when you plug in different numbers for the additional principal payments!

  2. CK says:

    I’ll second that thought. Money paid down on your house is great (as well as fantastic & super) but make sure you have a store of emergency money liquid first.

  3. Elle says:

    Great review of mortgage accelerator program. We just started paying on our mortgage and we decided to create our own program to pay it down quicker.

    We pay the regular mortgage payment on the 1st of the month and then we pay the principle for next month on the 15th. As our income increases, we hope to increase the extra principle payment.

  4. cubiclegeoff says:

    I’d go by the extra payments per month since that’s easier to handle because my mortgage company for some reason changes $15 for an electronic payment, but nothing to pay by mail. Sending a payment by mail every two weeks would just be annoying.

  5. Chris says:

    My mortgage company charges a fee to switch to a byweekly plan. Can I just send them a check every two weeks? If not and I choose to send an extra payment, how do you ask them to apply it to princple?

    • I suspect that this is going to vary a lot from lender to lender. With my lender (Chase) there’s an option on their web site to pay additional principal.

      If you’re sending a paper check, your best best may be to simply enclose a letter that indicates, in plain language, that you want this applied ONLY to principal.

      With my previous lender (CountryWide, which was bought by Bank of America, whom we fled from when we had the opportunity to refi) there was a problem getting them to properly apply the money when it was done via automated with drawal. They’d apply it to the next month’s payment.

      Finally, they told us to walk a paper check into the local office. The office was a block from my house, so it wasn’t much of an inconvenience.

    • JimmyDaGeek says:

      Chris. Ignore the term “bi-weekly” mortgage. It’s just a ploy to get to you make an extra mortgage payment each year, and charge you for the privilege of doing the bookkeeping.

      Instead, take your mortgage payment amount, divide it by 12, and send that amount to your bank each month. Make sure to label the check as “EXTRA PRINCIPAL”. You must also make sure you are allowed to prepay your mortgage. Some banks let you use electronic payments and will automate the process by pulling the money out of your checking/savings account.

      • Soccer9040 says:

        Just make the extra payment on your own. Look on your mortgage statement. It has a place where you can write in how much of the extra payment is for principle. I wouldn’t do the program because 1 – I could do it myself for free and 2 – what happens when you want to get out of the program because your cash flow changes. I wonder if they will let you out back to monthly payments.

  6. We just pay a little extra every month. If just took a couple of mouse click to adjust the payments.

    • Shirley says:

      In 1964 when we bought our first house, we added $10 to the payment with a note on the monthly payment coupon that it was to be added to the principal (a mouse was just a rodent at that time). That was what we could afford, and it paid off the house sooner with less interest paid.

  7. Mark says:

    I was told with my first house that the best way to pay down a 30 year mortgage was take your monthly payment, divide by 12, and tack that on in the extra principle box each month. I never did the math, but it was supposed to bring a 30 down to something ridiculous like 21 years. I agree with the comment about the mortgage company charging $15 for an electronic payment, but they usually don’t charge for an auto-withdrawal, so that is another way to setup the biweekly, or extra money a month without it costing you anything.

  8. qixx says:

    I’d stick with just paying extra with each payment if possible. Some banks will let you change to bi-weekly free but will charge handling fees on the second payment each month. I have seen some that won’t let you change back to monthly billing as well. It is worth the “hassle” to manage it yourself and keep your options open.

  9. I never understood why anybody would go through a 3rd party when they can often just talk with their banks to setup a bi-weekly payment plan. Also, you could just set money aside and make an extra payment every year.

  10. Ben says:

    Read this article by Burns he writes it all better than I could:
    http://assetbuilder.com/blogs/scott_burns/archive/2007/10/26/the-magic-of-a-tricky-mortgage.aspx

    Two rules I live by. . .

    1) Never pay debt with debt unless you’re refinancing to a lower fixed rate. Anything else adds risk.

    2) You have less money left after you pay a fee. Less money means less will go towards debt repayment.

    Ben

  11. Kirk says:

    I’ve been doing the extra principal thing on a 30yr fixed mortgage. But you should all do your math, because interest is not linear, so you need to check the amortization schedule for your loan, using any of the free calculators out there. Putting an extra $180 monthly towards my principal reduced my loan by 7years. However, putting $250 towards principal reduced it only by 9 years… Of course if I double my payments I’d only end up reducing the mortgage by 15yrs.

    So do yourself a favor and find that sweet spot where you can squeeze out an extra $200 and put the biggest dent in your mortgage.

    Of course this all has to do with compounded interest and the fact that we prepay the interest at the beginning of the loan etc…

  12. Luis M says:

    Mortgage Accelerator Programs
    Jim This article is confusing and for the comments I can tell we need to more research on HOW to pay a mortgage Better?

    A Bi-weekly payment is a type of acceleration program. But not the only one. There are others that use cashflow to offset interest that are much better.

    And if you do it takes 7 years of your mortgage and less than 5 % of America does it. We love to pay 30 years or never to the Banks. Going to a Bank for advice on how to pay less ??? Will be like a Cow going to a slaughter House and Say How can you help me???

    Paying a fee to do a Bi-weekly program is very naive. Only a bank will charge you or send you flyers to enroll you in this type of programs.

    Borrow one monthly payment from your cashflow, from your credit card equal to a month of your mortgage apply that to principal every December 28 (any day before the 30). Divide this in to 12 put that money back to the credit card every month by December your balance should be 0.
    And you will take 9 YEARS OF YOUR MORTGAGE do the math 12 x 90 month = yes a lot of money.

    If you need me to explain this again and again pleas ask me in this blog… I will
    We cant just pay 9 years extra of interest to a bank just because we don’t know.
    That why we are here in financial blogs to learn and to the best we can with our money.

    I’m a national trainer in the Mortgage Field. I guarantee you any question you ask some one already did. And our team has an answer or we will search for one…

    • JimmyDaGeek says:

      POPPYCOCK! “… cashflow to offset interest” does not give you the kind of reduction this poster is claiming. It is mathematically impossible. Search on “UFIRST MMA” to see discussions all over the ‘net showing real calculations. These programs will charge you hundreds to thousands of dollars, and will cost you more money than simply paying on your own.

      Think about the above claim. Borrow one month’s payment from a credit card with an interest rate of 15% to 30%. Put that money toward your mortgage. Now slowly pay off your card each month, paying that 15% to 30% interest. This is supposed to save you money in the long run. Impossible. This is better than simply paying an extra 1/12 of your mortgage each month as extra principal?

      • Luis M says:

        Yes, that was what one Branch President of Bank of America told one day. But the funny thing is. If we keep on doing the same thing over and over we get the same results.

        I said borrow your cash flow, not borrow money at 15%. if you keep the money of your expenses and use your credit card to pay them you will have an extra payment.
        Example let use a 1200 mortgage payment.
        And as you said and I agree you have and 1/12 extra every month. That is going to be apply to principal. Next month when you get your salary you apply the 1200 to the credit card balance. You will pay “0 interest” on the credit card and the money will be available to pay your monthly expenses again.

        Do that during the year and you will reduce 2 extra years besides the 7 years of the extra payment. And if you use cash back card with 2% you will get extra $ 200 a year.

        Conclusion:
        Yes I agree by-weekly payment is a way the bank tells you, we know customers are stupid, so let’s charge them to do something they can do on their own. And we will get an extra payment per year.

        Before you call some names, ask how could be done, also use the word please…
        I am 55 years old I write in blogs only to help people, to read and learn….

        If you or anyone else need more explanation as I said before just ask in the blog…..

  13. ziglet19 says:

    This is our first year with a mortgage, but we have been sending extra principle every month. I know our mortgage lender has sent information on a bi-weekly payment schedule several times, but we just trash it because the fee to do so was something like $600! I’ll pass on that and just pay the extra principle each month…

  14. JimmyDaGeek says:

    Shame on you. You should have pointed out that anyone can implement their “bi-weekly” mortgage by simply taking their current mortgage payment, dividing it by 12, and sending that amount in each month as extra principal.

  15. No Debt Plan says:

    Uh oh, Jim.

    As soon as the “real mortgage accelerator” salesmen see this post… they’ll be all over this. I experienced the same thing on my blog when I discussed it in the past.

    There are two types:
    1. the type you describe — the “pay us a fee and pay 26 biweekly payments”, and
    2. the “$1,000 to $3,500 amazing software” that guarantees to cut your mortgage down extremely fast. It requires a HELOC. Essentially you dump every cent of income into the loan, then pull your living expenses out via the HELOC. They claim you need their fancy software to get it to work.

    They hide the fact that you’re dumping every free dollar into the mortgage — and you could do that on your own, not need to spend thousands on software, and not earn them a large (50% or more, I’ve read) on the sale.

    Garbage, all around.

    • Luis M says:

      Forget the salesmen of a magic soft wares, they don’t even know what they are selling most of the time. That is why they put emphasis on software.

      They should sell it as and Advice, a consultation fee. As you said dump every cent of your income and interest you save in to the principal of the loan. The more you pay the less interest they will charge you ….. And yes you will pay by yourself the loan in half of the time.

      But the Million dollar question is how we make 95 % of America to get it??
      You need to learn how to pay your debt… the Smart Way not the Bank way.

      Financial planners, accountant, debt Counselors, Tax Advisors, Realtors, Mortgage Brokers, Credit Card companies or Banks. They give debt; they don’t tell you how to pay it. And they charge you fees to talk to them.

      So what will be the fair price to advice people to do what they can do…..

      Do people go to the Gym, eat better? No, and then they died of Cancer….

      Blogs are the best but we need the nor-readers to read them.

  16. MarshallMiddle says:

    I thought about paying off my mortgage early but I can’t afford it right now

  17. eric says:

    I’ve always thought it was a little strange to pay for a program that’s such an easy DIY thing.

  18. thomas says:

    Disgusts me these programs. “oh, just give us extra money, and we’ll let you pay for something you could just do on your own.” It’s bad enough housing costs have gotten so high, they want to squeeze the rock even more.

  19. Shanna says:

    Double check with your mortgage company to make sure they will take bi-monthly payments.

    When my old mortgage was with the Fireman’s fund group, they would hold the first payment in escrow type account until the second payment came in, and then they’d apply it to the loan.

    It’s just easier to add extra principal to your monthly loan payment.

  20. Adil says:

    What do you think of the programs that borrow money from Heloc to pay up extra mortgage?

    • JimmyDaGeek says:

      Garbage.

      These salespeople will tell you their method will help you pay your loan off in 1/3 to 1/2 the time. There is no magic here. These programs take all your extra cash and apply it to your mortgage. They rely on the HELOC for your emergency cash. They will try to confuse you with claims like “use the bank’s money” or “interest cancellation” or “equity cycling” or “cash cycling” or “little or no lifestyle change”. The HELOC is also used to consolidate credit card and loan balances so the cash you would use to pay them is used to pay down the mortgage, also.

      Right now, since HELOC rates are a point or two below mortgage rates, you’d think it was a good idea to take a chunk out of the HELOC and put it toward your mortgage. True, but now you have to repay the HELOC and your mortgage. What do you do when rates go up or your bank reduces or closes your HELOC?

      • Luis M says:

        you got the concept
        95% of American still pay credit card wrong, do not apply a dollar extra to their debts..

        Don’t even know what type of interest they have..

        So How much would you charge to sit down with someone for 6 hours to teach them all this concepts.

        And give them a monthly statement of how they doing, and what they should be doing and remind him to do it right…

        What should we charge … I agree that $ 3500 not even close

        • Peper Jones says:

          Luis M,so you do recommend this acceleration programs? Can you explain what are pitfalls if you use it? What if I decide to sell my house in few years, what will I do with my HELOC in this case?Thanks for the answer in advance

          • luis M says:

            The only pitfall is the price.
            It cost money to learn how now.
            Debt is too expensive to live with it. And what we don’t know that we don’t know is the worst. I had been learing how to cancel interest with cash flow the last 10 years of my life.
            I can’t believe how banks still today can lie mislead and rob people of their money.

            Like to charge fees to get in a Bi-weekly payment that is a fake statement.

            sorry I have to go family will do it later

  21. tim says:

    My mortgage rate is 4%. Wouldn’t i be better off putting that money somwhere else? You should be able to get more than that with your whole life insurance.

  22. Robert says:

    I sure would like a 4% interest rate. Mine is 6%. Where can I get a 4% rate?

  23. carlos says:

    luis m help me out i have a 115,000 home loan
    i bring in 3,000 a month what shall i do to cut it down from a 30 year

    • JimmyDaGeek says:

      Carlos, simply decide how much extra cash you can spare a month and send that along with your regular mortgage payment. Make sure you use a separate check and make a memo saying “Extra Principal”. Don’t fall for the bi-weekly mortgage payment scam. You don’t need to pay someone else to tell you to send in extra money. If you want the advantage of a bi-weekly mortgage, simply take your current mortgage payment, divide it by 12, and send that amount in along with your mortgage check.

  24. Accelerator Salesman says:

    I generally dislike blogs and find them a waste of time; but I wanted to add my two cents on this topic because I feel the banks have fleeced the American public for far too long, and we need to do what we can to be the best educated consumers we can. There’s a lot of information out there, some sold by snake charmers, others by ethical licensed professionals. It can leave your head spinning and you’ll still come up short on answers. As a former employee of a company that offered an acceleration program (only if it made sense for their situation), I’d like to offer the following comments:

    Like snowflakes, peoples personal finances are all different. Everyone thinks they’re qualified to say what is best for somebody else -except in most cases, they do so without all the facts (in my opinion, this is the main reason blogs are a giant waste of time and a growing cultural black-hole.)

    When it comes to loan accelerators, there are a number of ways to achieve the goal (no debt.) Some use bi-weekly payments (assuming their lenders allow it), others use lines of credit, others a reserve account. In all cases, the borrower is seeking a way to pay less interest than if they followed their current payment schedule. This isn’t rocket science. Pay more money against the debt and it goes away faster. The REAL question is: What’s the best way to do this?

    This is where the snowflakes come in… While loans may be the same (30yr fixed at X%), each borrowers ability to repay varies widely. And, it’s a little like hiring a personal trainer or a life coach: YES, you can research a program and do it all by yourself. But you know yourself better than anyone else and you may be seeking additional help to keep you on track and enforce the discipline it takes to achieve maximum results.

    Sure, you can read it on a credible site- you want to lose weight, drop the burger and go for a 3 mile run. But when you’re tired and hungry, what are you REALLY going to do? If you have someone helping you, you have a much higher chance of success. Same goes for the programs. Whether they help you shave off 2 months or 10 years, ONLY YOU can determine if it makes sense for your situation. You could do nothing and pay the full interest on the loan. You can always DIY, or you can decide if the fee is worth the help.

    In all these cases, the most important thing you can do is EDUCATE yourself: research your loan, research the programs and see what works best for YOUR situation. Be a smart consumer, ask questions (of yourself as well as the solution provider), and understand what your options are.

    If you can build equity faster, reduce your interest, and take action to improve your situation then you are making some good choices.

    Good luck everyone.

    Oh, and as a side note – I used the program our company offered, and it helped me shave serious money off both my mortgage and car loans. But that was me…

  25. Stormn says:

    Wife and I refinanced 7 yrs ago. We lowered our payment by $400 mth. We could afford the the old mortgage payment so we continued making same payments with new lower mortg. Our hous has 1 pymt left.


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