I received a notice from my mortgage company asking me if I would like to enroll in their "Equity Accelerator Program." Instead of making monthly payments I would make half my current monthly payment every two weeks. They say this saves me over $30,000 and several years of paying on my mortgage. The fee is only $295 to do this. This seems like a great idea. What do you think?
— P.H., Dryden
P.H., Why would you pay $295 for something you can do on your own with no hassle? The reason the equity accelerator works is because now you are making 12 monthly payments per year whereas by paying half that amount every two weeks you would be making 26 half payments thus equaling 13 full payments per year. The extra payment per year means you would pay off your mortgage over 6 years sooner and saves you thousands in interest. However, you have the ability to do this on your own and save the $295 fee. If you are disciplined you could always just pay twice your payment amount one month of the year. Most homeowners find this too much to handle for their budget. The best solution would be to send a little more each month so that by the end of the year you will have sent one full extra payment. The way to figure the amount extra to pay is divide your current monthly payment by 12 and add that to your current payment. For example if your current monthly payment is $1200 divide that by 12 and you get $100. Add that $100 to your regular payment of $1200 and you get $1300. If you make that $1300 payment every month each year you will have made enough payments to equal to 13 regular payments. This accomplishes the same thing as the "Equity Accelerator Program" your mortgage company was going to charge you $295 to do. If you are on a direct debit payment call your mortgage company and bank and change the authorization to reflect the slightly higher amount each month. If you mail in a check just send in the higher payment with a note stating that the extra money shall be used to pay down the principal balance. A little extra per month is much easier on the budget and will pay off your home over 6 years sooner. I applaud you for wanting to pay down your balance as quick as possible. Just save yourself the $295 and make the extra payment yourself.
Alex Lengemann is a licensed Real Estate Broker who operates RealtyVolution.com, a local real estate company. You can Ask Alex your real estate or mortgage questions by phone 810-664-1819 or by email Alex@RealtyVolution.com.