question to all homeowners(mortgage question)

[Semidevil]

4 months into living my new home, my mortgage company sends me an offer for their 'equity accelerator' program. basically, instead of paying monthly, I pay biweekly, and they say that I will end up paying off my house 6 years faster. The 2 biweekly amounts will still be the same as 1 monthly amount.

there is a 300 dollar one time fee and a 5 dollar monthly fee.

anyone signed up for this type of thing through their company? any advantages disadavantages they noticed through the process??

 

[dullard]

Originally posted by: Semidevil
4 months into living my new home, my mortgage company sends me an offer for their 'equity accelerator' program. basically, instead of paying monthly, I pay biweekly, and they say that I will end up paying off my house 6 years faster. The 2 biweekly amounts will still be the same as 1 monthly amount.

there is a 300 dollar one time fee and a 5 dollar monthly fee.

anyone signed up for this type of thing through their company? any advantages disadavantages they noticed through the process??

Basically it is a scam for your 300 dollars. It does what you can already do yourself for free. You can already pay more than the minimum and pay off your house 6 years faster.

And the scam part is the common misconception: 2 weeks is NOT half a month. They hope you won't do the math to realize this. 2 weeks is close enough to half a month that people might not notice.

 

[DeadByDawn]

Can't you just mail your payment in early and accomplish the same thing without the fees. Somebody correct me if I'm wrong.

 

[FoBoT]

NO! NO!

that is a rip off, you can make payments every 2 weeks without paying them a rip off fee

 

[cKGunslinger]

Originally posted by: dullard

Originally posted by: Semidevil
4 months into living my new home, my mortgage company sends me an offer for their 'equity accelerator' program. basically, instead of paying monthly, I pay biweekly, and they say that I will end up paying off my house 6 years faster. The 2 biweekly amounts will still be the same as 1 monthly amount.

there is a 300 dollar one time fee and a 5 dollar monthly fee.

anyone signed up for this type of thing through their company? any advantages disadavantages they noticed through the process??

Basically it is a scam for your 300 dollars. It does what you can already do yourself for free.

Can you really make bi-weekly payments to the mortgage holder yourself, or do you have to simply put your bi-weekly payments up (saving, etc) and still send them in monthly?

 

[dullard]

Originally posted by: cKGunslinger
Can you really make bi-weekly payments to the mortgage holder yourself, or do you have to simply put your bi-weekly payments up (saving, etc) and still send them in monthly?

Depends on the mortgage, some companies will let you do it bi-weekly yourself, others won't. Either way, the bi-weekly part isn't what is making the loan paid off sooner. The reason the mortgage is paid off sooner is that in this plan you pay far MORE per month than you are paying now.

 

[Vic]

Note, bi-weekly, not semi-monthly. The 2 bi-weekly payment amounts do not add up to the same as one montly payment. First, there's the 5 dollar fee. But second and most importantly, there are 52 weeks in the year but just 12 months. If you make a half-payment every other week (i.e. bi-weekly), then you will make 26 half-payments for the year. Note that this adds up to 1 extra full payment every year. Meaning that you will have to make 1.5 mortgage payments 2 months out of every year. You would acheive the same result if you kept to the regular monthly payment plan, saved up your spare pennies, and make an extra full month's payment of principal once every year on your own.

 

[bsobel]

Originally posted by: dullard

Originally posted by: cKGunslinger
Can you really make bi-weekly payments to the mortgage holder yourself, or do you have to simply put your bi-weekly payments up (saving, etc) and still send them in monthly?

Depends on the mortgage, some companies will let you do it bi-weekly yourself, others won't. Either way, the bi-weekly part isn't what is making the loan paid off sooner. The reason the mortgage is paid off sooner is that in this plan you pay far MORE per month than you are paying now.

You wind up making 13 full payments per year instead of 12.

 

[Semidevil]

never thought like that.

thanks~

 

[theNEOone]

i work at a mortgage company as a controller.

1st post is right on the money.

you can send your mortgage company the biweekly payments on your own, so don't worry about this stupid "accelerator program." they will apply any overages to your UPB (unpaid principal balance) and therefore reduce interest charges over the long run.

also, biweekly =! semi monthly. let's say your mortgage payment is $1,000 a month. that means you pay $12,000 for the year. now if instead you pay $500 every two weeks, you end up paying $13,000 during the year.


=|
=|

 

[waggy]

why not just overpay each month? seems silly to pay a fee to do somethingyou can do anyway

 

[slsmnaz]

If you read the fine print most of these offers are not from your actual mortgage company and they will state that at the bottom. This is the same with all the "Are you prepared to pay your bills if something bad happens?" offers.

 

[FrustratedUser]

Originally posted by: Semidevil
4 months into living my new home, my mortgage company sends me an offer for their 'equity accelerator' program. basically, instead of paying monthly, I pay biweekly, and they say that I will end up paying off my house 6 years faster. The 2 biweekly amounts will still be the same as 1 monthly amount.

there is a 300 dollar one time fee and a 5 dollar monthly fee.

anyone signed up for this type of thing through their company? any advantages disadavantages they noticed through the process??

LOL, same here. The bank called during lunch an offered me this. I said HELL NO!
You are much better off making a few extra payments on the principal by yourself and it won't cost you any fees.

It's a scam.

 

[Vic]

Originally posted by: FoBoT
NO! NO!

that is a rip off, you can make payments every 2 weeks without paying them a rip off fee

No, you can't. Read your mortgage note. Under the typical terms, you are required to make a full payment once every month near the beginning of the month.

The bi-weekly payment plan operates differently, as I explained in my post above.

"Every 2 weeks" and "twice a month" are not the same thing. That is the biggest misconception that I see when it comes to the bi-weekly payment plan option. There are 28 days in 4 weeks, and 30-31 days in a month. Those extra days make a month's worth of difference in a year.

What you can do on your own is to make an extra payment of principal every year, and you will accomplish the same goal of paying your mortgage off early.

 

[cKGunslinger]

Originally posted by: Vic
Note, bi-weekly, not semi-monthly. The 2 bi-weekly payment amounts do not add up to the same as one montly payment. First, there's the 5 dollar fee. But second and most importantly, there are 52 weeks in the year but just 12 months. If you make a half-payment every other week (i.e. bi-weekly), then you will make 26 half-payments for the year. Note that this adds up to 1 extra full payment every year. Meaning that you will have to make 1.5 mortgage payments 2 months out of every year. You would acheive the same result if you kept to the regular monthly payment plan, saved up your spare pennies, and make an extra full month's payment of principal once every year on your own.

True, but it for of us, expecially those who may not be the best at saving and get paid on a bi-weekly basis, sending your payments off (and out of reach) may be a bit easier than simply making an extra payment per year.

Now, do all mortgage lenders allow this. I remember when I looked up Wamu's policies that they offered a similiar service, but with a non-trivial fee for it. Can I just start mailing in payments every two weeks (starting two-weeks after my last full monthy payment) or will they jack it up or screw me over somehow?

 

[FoBoT]

you know what i mean, you don't have to pay a fee to pay off your mortgage early

these programs make more money for the mortgage company. the consumer doesn't need to pay $300 to them to for the priveledge

 

[daveshel]

They get more out of it than you do. Pay the same extra amount on your own and you'll pay it off 15 years early.

 

[Vic]

Originally posted by: cKGunslinger
True, but it for of us, expecially those who may not be the best at saving and get paid on a bi-weekly basis, sending your payments off (and out of reach) may be a bit easier than simply making an extra payment per year.

Now, do all mortgage lenders allow this. I remember when I looked up Wamu's policies that they offered a similiar service, but with a non-trivial fee for it. Can I just start mailing in payments every two weeks (starting two-weeks after my last full monthy payment) or will they jack it up or screw me over somehow?

Which is why I only recommend a bi-weekly plan to those who get paid on a weekly (or bi-weekly) basis.

Most mortgage servicers allow this and offer their own plan directly for a minimal fee. I strongly recommend against using a 3rd-party service for this. I also strongly recommend against just mailing in the the half-payments on your own without discussing your intentions with your lender first, as they could get confused over the application of the payments and hit you with late fees, etc.

 

[FrustratedUser]

Originally posted by: cKGunslinger

Originally posted by: Vic
Note, bi-weekly, not semi-monthly. The 2 bi-weekly payment amounts do not add up to the same as one montly payment. First, there's the 5 dollar fee. But second and most importantly, there are 52 weeks in the year but just 12 months. If you make a half-payment every other week (i.e. bi-weekly), then you will make 26 half-payments for the year. Note that this adds up to 1 extra full payment every year. Meaning that you will have to make 1.5 mortgage payments 2 months out of every year. You would acheive the same result if you kept to the regular monthly payment plan, saved up your spare pennies, and make an extra full month's payment of principal once every year on your own.

True, but it for of us, expecially those who may not be the best at saving and get paid on a bi-weekly basis, sending your payments off (and out of reach) may be a bit easier than simply making an extra payment per year.

Now, do all mortgage lenders allow this. I remember when I looked up Wamu's policies that they offered a similiar service, but with a non-trivial fee for it. Can I just start mailing in payments every two weeks (starting two-weeks after my last full monthy payment) or will they jack it up or screw me over somehow?

OK Mr, how much more difficult would it be to set aside that money every two weeks (wherever) instead of sending a bill every two weeks and do your normal monthly payment?
I see no difference, really.

 

[cKGunslinger]

Originally posted by: FrustratedUser

Originally posted by: cKGunslinger

Originally posted by: Vic
Note, bi-weekly, not semi-monthly. The 2 bi-weekly payment amounts do not add up to the same as one montly payment. First, there's the 5 dollar fee. But second and most importantly, there are 52 weeks in the year but just 12 months. If you make a half-payment every other week (i.e. bi-weekly), then you will make 26 half-payments for the year. Note that this adds up to 1 extra full payment every year. Meaning that you will have to make 1.5 mortgage payments 2 months out of every year. You would acheive the same result if you kept to the regular monthly payment plan, saved up your spare pennies, and make an extra full month's payment of principal once every year on your own.

True, but it for of us, expecially those who may not be the best at saving and get paid on a bi-weekly basis, sending your payments off (and out of reach) may be a bit easier than simply making an extra payment per year.

Now, do all mortgage lenders allow this. I remember when I looked up Wamu's policies that they offered a similiar service, but with a non-trivial fee for it. Can I just start mailing in payments every two weeks (starting two-weeks after my last full monthy payment) or will they jack it up or screw me over somehow?

OK Mr, how much more difficult would it be to set aside that money every two weeks (wherever) instead of sending a bill every two weeks and do your normal monthly payment?
I see no difference, really.

Except that where ever I stash that money, I'll know I'll have access to it. I doubt I'd be able to call the mortgage lender and ask for that last payment back becasue of a Hot Deal I saw on the forums.

It's all about willpower, and the lack thereof.

Anyway, it was just a question. People with poor money habits tend to look for the easiest ways to reduce their instantaneous burdens. $700 every two weeks certainly sounds a lot easier to swallow than $1500 every month.

 

[dullard]

Originally posted by: cKGunslinger
Anyway, it was just a question. People with poor money habits tend to look for the easiest ways to reduce their instantaneous burdens. $700 every two weeks certainly sounds a lot easier to swallow than $1500 every month.

The correct math would be $702.50 every two weeks (average of $1527.31/month) vs. $1400 every month (and an additional $122 if desired).

 

[cKGunslinger]

Originally posted by: dullard

Originally posted by: cKGunslinger
Anyway, it was just a question. People with poor money habits tend to look for the easiest ways to reduce their instantaneous burdens. $700 every two weeks certainly sounds a lot easier to swallow than $1500 every month.

The correct math would be $702.50 every two weeks (average of $1527.31/month) vs. $1400 every month (and an additional $122 if desired).

True, I meant to say $750 every 2 weeks vs $1500 per month. The point being, less money more frequently is usually easier to handle, rather than making sure you save enough from your first check to add to your second check to make your monthly payment.

A lot of people take a zero-sum approach to their finances (it took a while to break my wife and I of that habit) where after bills are paid from one check and savings are put up, the rest of the checking account can be drained to $0 before the next check arrives. That is a feasible (while not really smart) approach when all your bills match your payment schedule, but not so when they do not (monthly vs bi-weekly.)

 

[ATLien247]

Originally posted by: VicI also strongly recommend against just mailing in the the half-payments on your own without discussing your intentions with your lender first, as they could get confused over the application of the payments and hit you with late fees, etc.

Heh... I did just that!

After I worked things out with my lender, they offered the bi-weekly payment option with the obligatory setup fee and monthly fee attached. Fortunately the CSR was decent, and recommended just making an extra payment each year, making sure to indicate that I wanted it applied to my UPB.

 

[olds]

Scam
Just send one extra payment a year.

 

[Garet Jax]

Originally posted by: Semidevil
4 months into living my new home, my mortgage company sends me an offer for their 'equity accelerator' program. basically, instead of paying monthly, I pay biweekly, and they say that I will end up paying off my house 6 years faster. The 2 biweekly amounts will still be the same as 1 monthly amount.

there is a 300 dollar one time fee and a 5 dollar monthly fee.

anyone signed up for this type of thing through their company? any advantages disadavantages they noticed through the process??

Very simple to do yourself.

1 payment per month = 12 payments per year.
1 payment / 2 = 2 payments per month = 24 payments per year.
1 payment / 2 paid every two weeks = 26 payments per year.

If you pay one extra payment every year, then you will end up in roughly the same spot.