Chase mortgage "equity accelerator" program....what's the bottom line?

[Fausto]

At face value, seems like a relatively painless way to increase my home equity. On the other hand, I know there has to be something in it for Chase (they wouldn't "offer" otherwise) and I've found a few web sites with warnings that this and similar programs essentially amount to a scam and that I can really do this on my own without enrolling in any "program".

Being "challenged" in the area of finance (I'm a biologist, remember ) I throw myself at the mercy of the ATOT collective intellect before making a decision. Any and all info is appreciated.

Fausto

PS- $50 to start the program and $9 per month "participation fee" for Chase's program.

 

[HappyPuppy]

So, what's the program? How does it work?

 

[rahvin]

If they charge you $50 to start and $9 a month without providing anything than it's a scam. Now if you want to provide the details of the program I might reconsider that assesment.

 

[Fausto]

Equity Accelerator

I'm really leaning toward "It's a scam!" right now, but wanted to make sure.

 

[Oakenfold]

I bet RossMAN Knows what the dealio is.

Let's see if the bat-signal gets his attention.

Um okay I don't see anywhere on there where it tells you what they are doing and how they are saving money except for this?

How is the interest applied?
Our program actually optimizes the passbook interest paid. This interest is posted monthly as an extra amount that is applied to the principal of your loan. Therefore, your passbook interest helps to pay off your mortgage even sooner and your cumulative interest savings become even greater

Listed under their FAQ.
No idea what this is or how it works.

 

[kt]

It's definitely a scam.

 

[Mill]

It just gets you to pay bi-weekly and avoid accrual of some interest. I am not sure how it lets you pay down the principle more, but their program says it does. Maybe Vic knows???

 

[Mill]

Originally posted by: kt
It's definitely a scam.

I don't see how as of yet. I get offers for it all the time, but I have chosen not to do it.

 

[dirtboy]

They charge you to make bimonthly payments. Just pay extra on your mortgage or send them a check yourself. Plus, if something goes wrong and you need to get off the program, you'll have to pay to get back on it. I usually don't see too many situations where this is benefical.

 

[Mill]

Originally posted by: dirtboy
They charge you to make bimonthly payments. Just pay extra on your mortgage or send them a check yourself. Plus, if something goes wrong and you need to get off the program, you'll have to pay to get back on it. I usually don't see too many situations where this is benefical.

Ok, so the program is a scam, but the idea is a sound one then? See, they are saying your payments remain the same monthly, but you pay every two weeks half the amount of your normal payment.

 

[faZZter]

It is only valuable to people who don't have enough discipline to make extra principle payments throughout the year. Otherwise it is just costing you extra money to do what you could do anyway for free.

Basically it amounts to about the same as making one extra house payment a year, which will save you thousands in interest over the course of your loan.

 

[rahvin]

There is only one way a program like this can benefit you more than you simply making the extra payment every year. The bi-weekly payment originated as a method to pay down your mortgage quicker because you would make a payment ever 2 weeks and the mortgage company would apply the money directly to mortgage immediately. By doing this you eliminate interest computations on the second bi-week from principle paid in the first 2 week period. Not only would you get the benefit of the additional payment every year but you would reduce interest charges through compounding.

The plan being offered here is very similar to the one my mortgage offers and it offers NO benefits above what you accomplish by making the extra payment yourself or by simply upping the amount you pay every month. A true bi-weekly payment plan is done through the mortgage company AND the payment is applied directly and NOT held is escrow. If they mention interest earned on money or escrow the plan offers nothing above what you can accomplish by simply writing an additional check every year.

 

[Ameesh]

they charge you to do something you can do yourself. I would suggest that if you could send more money per month like say $500 amonth extra you'll eat your mortagge away very fast.

 

[KK]

Go with your instinct on this, it is a scam. Well, not really a scam, just a waste of your money. Although this one is cheaper than any offer I have recieved for the similar deals. All I have ever seen is 299 start up and then a monthly fee. The monthly fee was less than the nine dollars you say, so maybe that is where the are making up for the low initial cost. Just divide your monthly payment by twelve and pay that extra ever month, and voila, you will save yourself 50 dollars and 9 a month. Throw that 9 into your monthly payment as a reward for being so smart.

KK

 

[Thegonagle]

Not really a scam, but it's something you can do yourself. It amounts to paying a payment twice a month, bi-weekly, or weekly, depending on your pay schedule, and actually paying more per month than your minimum payment, applying that extra payment to your principal. Some interest savings also come from the more frequent payments, because interest accrues daily.

You can and should be doing that anyway if you can, especially early on, when the interest is the vast majority of your mortgage payment.

 

[Vic]

Originally posted by: Millennium
It just gets you to pay bi-weekly and avoid accrual of some interest. I am not sure how it lets you pay down the principle more, but their program says it does. Maybe Vic knows???

I do.

It's not a scam, although the "participation" fee is downright scandalous. There are a lot of companies that do this and the going fee seems to be about $4 bucks a month with a $50 enrollment fee. These programs are usually handled by a 3rd-party payment management company and not by your mortgage company.

This is a bi-weekly payment plan. This is not a scam, but I'm not a big fan of them either.
A bi-weekly payment plan is where you pay half of your regular monthly mortgage payment every 2 weeks. Now that's the kicker, where a lot of people get confused. Every 2 weeks does not mean twice a month, it means (for example) every other Wednesday (or every Thursday or every other Monday, hopefully you get the point).
What does this do? Well, there are 52 weeks in a year which means that paying every other week you will make 26 half payments and that means you will make a full extra payment of principal once every year. Just as if you paid your lender a full extra payment of principal every year, you will reduce the term of your loan and save thousands on interest. As a general rule of thumb (it tends to very based on interest and loan amount), a bi-weekly plan will reduce a 30 year fixed mortgage to about 23 years.
Don't think that's a lot of savings? On a $100,000 at 6% interest, 7 years of payments equals $50,362 dollars. BUT, you paid an extra payment every year for 23 years, so knock $13,790 off that savings, and you paid $2,534 in program fees. Net savings would be roughly $34,000.

The problem with these programs is that it makes very little sense to pay an outside company to do it for you. I have found that these only help people who get paid on a weekly basis, i.e. once a week or once every 2 weeks. If you get paid twice a month or once a month, don't apply because 2 months a year you will have to pay one-and-a-half times your normal mortgage payment, which could be uncomfortable.

A better program, with no extra fees, would be to simply do it yourself and save up one-twelfth of your principal-and-interest mortgage payment every month, and then apply a full extra principal payment to your mortgage at the end of every year. If you religiously stick to that program, it will have the same effect, and you should save about the same amount of money.
An even better plan would be to take advantage of today's (still) low interest rates and refinance to a 15 or 20 year term.

Hope that helped.


editted for a couple of minor typos

 

[kranky]

Great explanation, Vic.

And rahvin wisely points out that paying biweekly doesn't really do anything special if the payments are only applied once a month. If the payments are APPLIED biweekly, that makes a big difference.

 

[scotts01]

It is a fantastic program as long as you are able to pay the principle and interest every 2 weeks as the program is designed to do. I don't remember all of the numbers but we used Chase for our mortgage and a 30 year term was going to be paid off in something close to 23 years. By adding $100 to each bi-weekly payment it would have been paid off in 15 or 16 years. It's all about compounded interest. Not all mortgage lenders offer this but check around, Like I said, we used Chase. The fee's are very small, however when we did it, a full payment was required upfront. They did not use this as fee's, we got the credit. It was just what they required. In our case, we paid $400 extra towards the principle every other week and paid our ;loan off in something close to 9 years. It was tough having one income and all but I am now 41 years old and live in a free and clear house.

 

[UglyCasanova]

Just make an extra mortgage payment once a year.

 

[T9D]

Just make an extra mortgage payment once a year.

Damn dude the house is already paid off by now and the grand kids own it :biggrin: