(Mortgage) Equity Accelerator

[WeLoveThePoly]

Our mortgage company has an Equity Accelerator program available. We could have our mortgage payment automatically deducted from our checking account around our paycycles (bi-weekly for example). This would even out our cashflow a bit and we'd also accumulate an extra mortgage payment each year.

Does anyone else do this? What are your thoughts about it? Pros/Cons? Catches?

I was just going to do this on my own (send 1/2 payment every 2 weeks) but the rep at my mortgage company said if I sent in less than a full payment it would be sent back to me after X number of days (I forget what it was) unless they received the balance to make up the full payment.

TIA!
Debbie

 

[dandave]

Our mortgage company sent us a letter about being able to have bi-monthly payments automatically deducted. BUT, they wanted several hundred ($500??) to set this up. No, thank you very much.
They will accept extra principal in $100 increments. There is even a little space on the payment coupons for this. And it's free. Free is good.

 

[Am_I_There_Yet]

The only drawback that I'm aware of, would be the setup fees involved. Bi-weekly mortgages will save you interest and shave off some years in the long run. You can accomplish the same thing on your own, by making one extra payment a year, and having it go directly towards principal. That's what we do.

I don't see why your mortgage company won't let you put extra money towards principal only. I'm with Countrywide, and there is actually a space on my coupon specifically for that purpose. If you're just sending in an extra amount, that doesn't equal your payment, then yes, I can see how they could be getting confused. Did you mark it "principal only"?

 

[WeLoveThePoly]

Ah ha! So that's the catch! I thought there might be one.

Yes, I can make extra principal payments too. I just thought this Accelerator thing would be nice because it would spread the payment out over 2 payments a month instead of one big payment a month. But, if it ain't free I ain't goin' for it!

Thanks,
Debbie

 

[dandave]

There's always a catch...

 

[Chicago526]

The only drawback that I'm aware of, would be the setup fees involved. Bi-weekly mortgages will save you interest and shave off some years in the long run. You can accomplish the same thing on your own, by making one extra payment a year, and having it go directly towards principal. That's what we do.

I don't see why your mortgage company won't let you put extra money towards principal only. I'm with Countrywide, and there is actually a space on my coupon specifically for that purpose. If you're just sending in an extra amount, that doesn't equal your payment, then yes, I can see how they could be getting confused. Did you mark it "principal only"?

Mine is with Countrywide too! I send them an extra $3 a month, just to round up the payment to an even $1300...

Anyway, it varies from company to company, but many will set up that it withdrawls the money 2x a month, but charge a fee. Countrywide is $4 a month (or payment, I can't remember). Others may charge more.

What you CAN do is just send in the overpayment on your own. Just divide your monthy payment by 12, and send in 1/12th of you payment in with your regular payment. So in my case it's $1300/12 = $108.33. I'd send in the $1300 plus the $108.33 each month. That gives you the extra 1 month payment per year, and you don't have to pay your mortgage company for the privilage. Just be sure to mark the extra amount as going to the princeple, not the interest or escrow (if you have escrow).

 

[DVC Sadie]

Our mortgage company never changed for setting up bi monthly automatic payments from our bank. Please check with your mortgage company to see if they charge for this service.

 

[Toby'sFriend]

yes, it is kind of silly to pay for this.
If you have online bill pay, you can easily accomplish making an extra payment a year... with no service fee.

Countrywide bought our Mortgage a couple of years ago. I always pay online by the 5th of the month. I notice this year they have added a $2 fee for making a payment from the 5th through the 10th.

That really makes me kinda pissed off, because I'm actually MONTHS ahead on our payments from having paid extra, not a couple of days behind.

 

[PattiPB]

If you want to pay bi-monthly, but your mortgage is set up monthly, just do it yourself.

Mortgage is 1200 a month.
1st paycheck of the month, write out a check for $700 (put it aside).
2nd paycheck of the month, write out a check for $700.

On your payment coupon, write in $200 as extra principal. Send both checks at once. They won't care.

This might be overthinking things, but it accomplishes your desire to (1) pay half per paycheck, and (2) pay extra towards the principal.

 

[Kycha]

I have a work friend who thinks this is a great idea. She said to me "my mortgage company lets me pay biweekly and only charges me $xxx. My mortgage will be paid off in 22 years." I still haven't convinced her that she can do this all on her own and it won't cost her a thing just by putting money towards principal each month. My mortgage consultant gave me this info when we bought our house. She also gave me an amortization schedule so I can see how far ahead we have paid. We have been paying on our 30 year mortgage for 6 years. But because of the additional principal payments I make each month, we are 1/3 of the way to paying off our mortgage.

 

[T. Lynn]

Our mortgage company does this as well but at the time we got the letter, it was a free sign up period and no fees. Since that was the case, we decided to go for it since our regular mortgage was automatically deducted anyway.

When we refinanced to a 15 year, I didn't go back to the bi-weekly payments since we were already shredding years off our mortgage by refinacing.

 

[MrsPete]

Note that with a monthly mortgage payment, you owe 12 payments per year (12 months in a year). With bi-weekly plans, you owe 26 payments per year (52 weeks in a year, payment every other week). That's the same as 13 monthly payments, which makes up some of the difference in "savings". You could accomlish the same thing by paying a little extra towards principle each month.

When we were first married and took out our first mortagage, we chose a 30-year mortgage, but we paid it on a 15-year schedule. We saved a ton of money; however, we felt safer going with the 30-year official paperwork. We were just married and didn't know what the future would bring. If we'd had surprise twins, if we'd lost a job, etc., we could've dropped back to what we were required to pay. I highly recommend this method for those who are disciplined enough to "do it on your own".

I remember clearly a math teacher telling us about one hard and fast rule, "Always get a simple interest, no-prepayment penalty loan". That means you can make extra payments without incurring fees.

 

[Am_I_There_Yet]

If you want to pay bi-monthly, but your mortgage is set up monthly, just do it yourself.

You meant bi-weekly, right? Bi-monthly would get you in a world of trouble!

 

[ducklite]

And there's always the chance that your employment may change so the dates that you've got the wothdrawls coming from no longer work. I agree with the others, just make extra principal payments on your own for the same effect and less worry.

Like Chicago I also "round up" to the nearest $100, and it's going to pay off big time in the long run

Anne

 

[WeLoveThePoly]

Thanks everyone for your input. I love the DIS.

I think I'll give PattiPB's idea a try .....

If you want to pay bi-monthly, but your mortgage is set up monthly, just do it yourself.

Mortgage is 1200 a month.
1st paycheck of the month, write out a check for $700 (put it aside).
2nd paycheck of the month, write out a check for $700.

On your payment coupon, write in $200 as extra principal. Send both checks at once. They won't care.

This might be overthinking things, but it accomplishes your desire to (1) pay half per paycheck, and (2) pay extra towards the principal.

 

[PattiPB]

You meant bi-weekly, right? Bi-monthly would get you in a world of trouble!

HELLO!!! Bi-monthly for the next 60 years!!! Teacher proofread yourself!!!!!

Glad you're going to give it a try. My parents are the epitome of "The Millionaire Next Door", and my dad convinced me to do it with making extra payments myself, because if our situation ever changed, I could just pay the payment (without any extra) if I had to. It's a great way to live, if you are disciplined!!!

 

[tinkarooni]

I wanted to share this. There is a great calculator that you can use to show how much money you are saving by making extra principal payment. Go to www.wamuhomeloans.com and click on calculators. Go to "Can making extra payments benefit you." It doesn't matter if your mortgage is with them or not. You need your current balance and interest rate as well as the remaining term of your mortgage. You can skip the current market value of your home taxes and insurance info unless you are still paying PMI. The calculator will show you how much the extra payment is saving you in $1,000s of $$$ in interest. It will also show you how much time you are cutting off of your mortgage.

When I looked into bi-weekly payments with our mortgage there were fees involved. We instead pay extra once a month along with our payment from automatic deduction and now after awhile we don't even notice it happening. I can go online and change my payment and every now and than bump it up again a little at a time. Every little bit counts! We have printed out our calculator and hung it on our fridge for inspiration!

 

[Cheshire Figment]

Countrywide bought our Mortgage a couple of years ago. I always pay online by the 5th of the month. I notice this year they have added a $2 fee for making a payment from the 5th through the 10th.

Check your documents. If they say payment must be received by the 10th of the month the servicer cannot change the contract. Also find out from Countrywide who actually owns the mortgage; Countrywide is probably just the servicer. If that is the case you can complain to the owner (which is probably FNMA).

 

[AliciaS]

We used an interesting method to pay off our condo early. Get your amoritization table (you can get it at bankrate.com) and simply pay the next month's principal as your extra principal each month. This way, when you are younger and poorer and spending extra money on curtains and furniture, you might only pay an extra $60 per month. As you get older, and hopefully make more money, you might pay hundreds extra per month. It's a fun way to cross off TWO months each month. When I had extra money I would sometimes add up 4 or 5 months worth of principal and send that in - and have fun crossing off all those months.

 

[robsmom]

Thanks everyone for your input. I love the DIS.

I think I'll give PattiPB's idea a try .....

I wanted to just point something out on this method. It is a great idea if it is discipline that you are looking for. If you need to see the 700 go out of your checkbook in order to not spend it. But in this method you are not making the 1st payment. You are really make one $1400 payment at month end. You lose some of the savings that comes from paying early (less interest) that comes if you actually mail the first check. The only savings you really get are the extra principle. If you are disciplined and are only going to send the money once, just write the one $1400 check at month end.