A 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 )