As I’ve written before we bought our first home back in September 2007. It’s been a great thrill thus far. Our mortgage payments are well below the upper range of “allowable” debt-to-income ratios. Everything is peachy.
A few months after we moved into the house we started receiving a plethora of offers from companies. Offers to make our lives easier by cutting or fertilizing our grass (wow who knew it was so expensive), to pick up our dry cleaning (we use Dryel, no thanks), to saving us interest costs on our mortgage by accelerating our payments.
Woah, hold up. That last one there makes me pay attention.
You’re saying you can save me money on my mortgage? Legitamitely? Legally? Okay, I’ll bite. I’ll open the envelope.
Imagine the car is your mortgage. Now imagine it accelerating… the smoke is just interest you are leaving behind.
(Photo by dodge challenger1)
How Mortgage Accelerator Programs Work
If you don’t own a home or you threw away all of the marketing materials as soon as you received them, let me give a brief explanation of how a mortgage acceleration program works.
With a typical mortgage you make monthly payments over the life of the loan. A thirty year mortgage is 360 months and 360 payments. Thus, each month once your payment is processed your mortgage is reduced by a certain percentage of your payment.
Obviously to pay off the mortgage faster you need to pay more principle, especially at the front when 90-95% of your payment is interest.
These mortgage acceleration programs promise to set this up for you while also not increasing the total amount you spend each month. So if your mortgage is $1,000 per payment, you’ll still end up paying $1,000 per month yet somehow pay the mortgage off faster.
Sound too good to be true? It is.
How the system works is instead of paying once per month, you pay once every two weeks. The bank receives your payments more frequently, thus you are charged less interest because the principle is paying down the loan more often. Essentially you are saving two weeks worth of interest on a tiny bit of principle and compounding it over time.
Up to this point everything sounds legit and it should work. But wait…
The Catch of the Mortgage Accelerator
There are two major problems to this system.
The first problem is they mention in very tiny print toward the bottom of the letter that this program will actually cost you money to participate. The letter I am looking at right now has a one time fee of $49 and then a bi-weekly cost of $4.15. In the first year you will be charged $156.90 (26 bi-weeks x $4.15 plus $49 one time) just to participate. Ouch.
The second problem is that you don’t make 12 payments in a year by making a half-payment every two weeks. Why? There are 52 weeks in a year. There are 26 bi-weekly periods in a year. If a month has four weeks (or two bi-weekly periods), then divide 26 by two and you get… ta da! 13 months in a year.
No, they haven’t extended time (I would sign up for that!) they have snuck an extra payment in during the year and charged you $107.90 for the service.
What a crock.
Set Up Your Own Mortgage Accelerator
Here’s a simple alternative: create your own mortgage acceleration “program”, don’t charge yourself for it, and pay your mortgage off faster. Sounds good, right?
If you wanted to mimic the program I described above just divide a regular payment by 12 and add that amount to each of your normal payments. If your mortgage is $1,000 per month that would be $83.33 extra each month. So each month pay $1083.33 and be happy to know that you are reducing your principle faster than normal. (And you get to keep all of that fee money, too.)
The best idea is to have a plan. That sound ridiculous I know, but planning is key. Can you afford to pay additional down on your mortgage? Or do you have other savings goals to meet (college education, retirement, credit card debt, etc.). That’s what this blog is about. I hope you’ll stick around.
Hey Readers — are any of you signed up for a mortgage acceleration program? Have you ever received one of these offers? Leave a comment or drop me an email.
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That is definetly one to avoid. We plan on starting mortgage overpayments later this year when we have got rid of some debt. That formula you applied at the end sounds a good one, thanks.
Fantastic explanation of a common financial mistake people make. You nailed it right on the head when you outlined how to set-up your own acceleration plan. Paying someone 100+ bucks to send in bi-weekly payments when you can do it will online bill pay in a matter of minutes? No way, Jose!
RUN AWAY… a mortage accelerator program in which you have to pay to participate if idiotic! You may as well tattoo “I’m a dumb a$$” on your forehead.
Most lenders will allow you to divide your payments, especially if you set up an autopay.
I AGREE…The truly dangerous part of this scan is that they claim no additional principle payments and only a “small” fee.
Later in the year when you’ve forked over the fees they’ll steal your Christmas money by demanding that 13th payment.
With friends like these….
I don’t own a home but have heard many stories about these debt elimination services, mortgage acceleration, etc. and I pretty much concluded that people can do these services themselves.
I mean lets say you have a lot of debt, why do you need to pay someone to consolidate or negotiate for you when you can just pick up the phone and call your credit card company?
Same with debt acceleration, go to the person who set up your mortgage and they can set that up for you without charging ridiculous fees.
I think people simply have become so used to debt and overwhelmed, and don’t understand it that they will do anything to get rid of it, and get rid of it fast thinking it is easy to do so.
I like your advice on how to set up your own. We tried to simply pay bi-weekly ourselves once and were told that we weren’t allowed and would be hit with late fees because the payments were not enough.
Plus the fact that they do their best to make the envelopes these come in look like an official letter that you have to do with your lender. Then at the very bottom in that tiny print explains what it really is!!!
I got really annoyed with the 50 plus of these offers I probably got when I purchased.
Most of this plans also hold your 13th Payment and add it at the end of the year, thus making you pay for the privlige of allowing them to earn interest on your money. Don’t forget that you just want to divide you P+I when figuring out how much extra to send in, many different scenerios on how to do this at the Bankrate calculators.
You could take a look at your mortgage schedule. If you don’t have one, you can easily set this up as an Excel spreadsheet. Just take the next month’s principal amount, and include that in your monthly payment. This should be a small amount at the outset, and will increase over time. This method will allow you to pay off double the amount of principal each month, cutting the mortgage time in half, and saving you lots of interest.
@Garry: I think as long as you are making some sort of extra payment that’s better than nothing.
@Baker: Yup. It frustrates me that the mortgage information is either freely available or they sell it to these companies to offer this crap.
@DYDR?: Hmm, didn’t know most lenders would let you make the changes on your own. I prefer to set ours up each month so if we wanted to pay extra one month we could.
@tom: I think the reason these services survive is (well obviously) someone is using them. We are a very lazy culture. We think, hmm, I should really try to get rid of that credit card debt. Ho hum. But then we hear something on the radio that promises to slash the cost for us… and we pick up the phone so someone else does it. (Even though it ruins our credit.)
@Jason: I can see how you would have to be careful and check with your mortgage company.
@Phillip: Excellent point! That really bothers me. “URGENT PLEASE OPEN”…
@Brian: That’s awesome. I didn’t know that. How shady.
@Corporate: Yup that’s how a lot of people are making a 30-year mortgage act like a 15-year. If you had to stop the extra payments you could…
Great information, thank you so much…nicely done.
Warmly,
Jim
I’ve never gotten one of these offers… Can’t believe the scams out there.
When I refinanced for 30 years I decided to make additional principal payments, rather than do a 15 year mortgage with higher payments required.
Originally I paid additional on the principal every month. I then decided to pay off my little remaining consumer debt, & save some extra money in the emergency fund. I’ve just started putting more on the principal again, but I know I don’t have to do that if money gets tight.
This plan is working fine for me, without any commitment of extra money.
@Diane: I’ve actually recommended doing just that in the past, which you can find here.
Some people say the flexibility you would gain by not having to pay the full 15-year payment (if you got into a financial pinch) is likely to only be a few hundred dollars and it isn’t worth the difference. I say a few hundred dollars can make or break you in a financial pinch, so I’ll take the risk — especially if I intend to pay it off like a 15-year mortgage.
We signed up for the Wells Fargo mortgage accelerator program a few years ago without any penalities, hitches, or hidden fees. Believe me, I checked!
My husband gets paid on the 15th and 30th of the month but I have bi-weekly paychecks. Our ‘accelerated’ mortgage payments always fall on the same week as my extra paycheck so we can cover it. It keeps me from spending that extra windfall and puts it towards paying down our home without me having to do anything extra.
We get those all the time. Even from our mortgage company!
You can easily do this yourself by making extra payments. Add to your normal payment–the mortgage company will treat any extra paid as going toward the principal. Add an extra 1/12 of a payment each month and there you go, a faster paydown.
Your info on the “bi-weekly” MA plan is very outdated, but some people still try to push this.
What is you comments on the NEW MA plans using the Letter Of Credit not only for the mortgage but for ALL DEBT Iincluding credit card debt, student loans, etc.
Thank You
Mortgage accelerators work and that’s why people have used them for years. The ones that use a heloc or revolving credit line work best because they are customized for each user’s finances.
Not only does it offset mortgage interest, but it also gives the user a simple plan to follow and a way to manage how well they are doing over time. It’s like a trainer, providing motivation, instruction, and support. The name of the article is prejudicial, about “avoiding them like the plague”.
Just look at all the people over 60 with big mortgages today, or losing their homes – they followed that advice.
The best thing most people can do is to use a mortgage acceleration strategy. Forget about doing it yourself because most people don’t have the discipline.
@Steven: Your comment is laughable. The people over 60 today with big mortgages don’t have them because they didn’t use a mortgage acceleration program. They have them because they bought houses they couldn’t afford, or just expensive homes, or because they got an adjustable rate mortgage.
The worst thing people can do is use a mortgage acceleration program that charges them for the “privilege”.
@Kevin: Anyone who needs to begin their post by denigrating an opinion opposite their own is someone to be suspicious of. You fit the mold. Not only is your comment rude, it flies in the face of all statistics. But, what do you care about statistics?
In fact, you are ignorant! Anyone who listens to you, about anything, deserves what they get!
People use services they can’t do themselves – weight loss systems to help lose weight, financial planning consultants for establishing a means to an end (of which a mortgage accelerator is part), and exercise trainers to stay focused at the gym.
All real, all good, and all a fact – but, ignorant people like you don’t believe in facts – you have an opinion to sell.
The worst thing people can do is listen to you – and not accelerate their mortgage payment.
@Steven: You come across like you work for a mortgage acceleration program.
I can prove to you that what these programs charge you can be done on your own — without any cost.
I welcome you to show me how paying for a mortgage acceleration program is better than doing it for free.
Weight loss systems are a great example of how things don’t work. When was the last time someone went on a diet (which is what I would classify as a weight loss system) and kept the weight off?
No, what someone who is looking for weight loss is a lifestyle change. Americans are far too reliant on pills and programs that cost them a ton of money when simply eating better and exercising would suffice.
The same is true in most areas of finance. The “Turn Debt into Wealth” systems you hear promoted on the radio are garbage. Programs don’t work unless they institute permanent life change. This is true of all systems whether they be Dave Ramsey or someone on the radio. Unless you change the problem internally — at the core of the person — then inevitably they will return to their old ways.
What do I have to sell? Do I have a book out? (No.) I’m trying to show people what a crock many financial products are. I’d love to learn how to sell my opinion. I’d sell it to everyone if I could!
Again if you can show me how paying thousands over the course of a program ($107.90 per year plus the $49 set up fee) is better than dividing up the year into 13 payments on your own — and getting the same result — I welcome that.
You have also failed to show how people over 60 have big mortgages or are losing their homes because they didn’t use a mortgage acceleration program. Again these mythical people you mention aren’t in those situations due to not using a program like this. It is due to other poor decisions.
Full disclosure: I am one of those people the author warned you about. I sell a “mortgage acceleration” product.
(To the author: if you consider this to be spam, please except my apologies and simply delete this. I’ll understand. [Author: I don't mind it, but won't allow you to link to your commercial product. Sorry.])
I first came across the concept a few years ago. I had intended on selling a system that charged a setup fee and a monthly servicing fee to “handle it for you”. The more I thought about it the more I couldn’t sell such a system. Although it works it is taking advantage of people. With a little education, most people could make some extra payments and achieve similar results on their own. A biweekly payment plan could take several years off a mortgage. But realistically most people don’t have the discipline to follow through and really see that much savings. If you are one of the few who do have that discipline and financial ability then you may think this whole discussion is a stupid waste of time. For the rest of you I offer something else.
I’ll be blunt here; a few people do think my company is a scam. These people are intelligent, well meaning people who have simply not experienced the program for themselves. Does everyone need our product? No. Does everyone qualify? Most, but not all. Can you save tens of thousands of dollars on your mortgage and other debts using our program? Maybe, maybe not. I, or another independent agent, can take a few numbers from your current financial situation to determine what our system can do for you. You can then decide if you want to use our system or not.
Can you do something similar without us? Yes. Of course you can. We make it simple. We take into consideration far more variables than you will on your own. We get optimal results saving people more than the cost of the program many times over. Many people have someone else prepare their taxes. It’s not that they can’t do it themselves, it is just easier and more effective to get help.
Many people have been skeptical of our company simply because it sounds too good to be true. What will it cost you to learn more and see what we can do for you? Nothing. What will it cost you to not use our program? (Something to think about.)
If you are honestly seeking answers you can see and hear plenty by clicking on my name above (Steve Orris).
@Kevin: The arguement about people losing their homes is not academic – over 3 million foreclosures projected in 2009 and 8 million in default as of now (Bloomberg). Many, as you say, are the result of aggressive recent lending (option arms), but there are also a large number who have owned their homes for over 15 years, and they are going under due to job losses, not by lending scams. Those are the people who would have been protected if they prioritized a mortgage acceleration plan.
You referenced one company that charges $3500, but there are others programs for under $500, and are just as effective. None are based on the 13 week bi-weekly system. Who wants to write a big check every 2 weeks? Also, bi-weekly plans save only about 5 years.
It’s obvious your argument is that people can do it for free; – a do-it-yourself system. You are entitled to your opinion, but if I can buy a system for under $500 that keeps me on target to pay off my mortgage early, (like in about 12 years) saving me over $150,000K, I’ll “risk” the $500.
I can also file my taxes myself, but I use an accountant. Do you also advocate doing that for free?
Lastly, I don’t need to “show you” anything – I am not trying to sell you anything, but you have your opinion, and I have mine. I want peace of mind, and I don’t want to have a big monthly mortgage payment if my employer downsizes ( you can’t depend on employers). Mortgage acceleration, whether you do it yourself or you buy one (for under $500), is one of my priorities.
Le’t just agree to disagree, OK?
@Steven: I can agree to disagree, but I still don’t think you’ve made your point.
Yes there is a chunk of the population that has lost home to foreclosure. Some through aggressive lending some through job loss.
Using a mortgage acceleration would have saved these people? I’m not convinced. I think a substantial emergency fund would have been a pretty good remedy. Remember until recently the savings rate in the US was negative. If you’ve got 6 or 12 months of expenses saved up and lose your job you suddenly have 6 to 12 months to either get a new income stream or lose your liabilities (mortgage).
My point at the end of the day is why do something you can do yourself for free?
Do I do my own taxes? Yes. It costs me $16.95 to do federal and state taxes with e-file. I’m not an accountant, but I can use cheap web software to do it rather than being charged by the hour for an accountant. (I see your point: I don’t do my taxes by hand — so why not rely on someone else? I get that.)
I completely agree you can’t rely upon your employer. I’m just not buying that accelerating your mortgage with a paid program is the solution. For that problem a healthy emergency fund and paying your mortgage off early yourself should do the trick.
Real mortgage accelerated products deal with taking out heloc’s and playing a game of interest rates, not bi-weekly payments like the guy who wrote this blog is talking about. Real acceleration products cost thousands of dollars and are way more complicated than paying a few more dollars each month to pay down the principle. No wonder you all are getting all upset about getting taken for this ‘scheme’
That’s my point. The offers I received were just that: schemes. Ripoffs.
“The highest form of ignorance is to reject something you know nothing about.†– Dr. Wayne W. Dyer
“Gotocollege” understands that there is a difference between real mortgage acceleration products and the schemes that look like them. However the most advanced product no longer requires a HELOC.
@gotocollege @Steve Orris: Keep it up guys. I’m finding this hilarious. No one has been able to bring evidence to the table that the products they are promoting are not scams. If you can prove otherwise then I’ll read your evidence and possibly change my mind. (Yes, I am open to changing my mind when presented with solid facts.)
In short I base my opinions on what I can get my hands on. If I have to register at your (not you specifically, any of these products) website and give lots of personal information to find out about whatever great mortgage acceleration product you offer, I’m not interested. You should be able to give me enough details to make a decision without a lot of secure information. (Or at least an example that I could then apply my own situation to.)
It’s like anyone trying to sell you a product. You call a financial adviser and ask what they charge. “Well why don’t you come down to the office so we can discuss your individual situation.” Red flag. If you can’t be upfront and honest with me about your pricing, I smell something funny. (Again Steve this is not directed at you. I’m speaking in general.)
What I think happens in many situations is someone comes up with a new package for an older financial principle (or offers to does menial, repetitive tasks for someone) and charges money for it. They are reluctant, like the financial adviser, to disclose what they really do because if they did the person could figure it out on their own and save their money.
Nonetheless this post is about the offers that I received in my mail. The offers I received were ripoffs. The offers I received made no mention of using a HELOC in any kind of way. It was: pay an up front fee to get started, then pay a monthly fee. These fees would allow you to essentially pay one extra mortgage payment per year. I think we can all agree that paying one full extra payment per year is something that every person is capable of doing on their own, without fees.
Do you disagree?
@Kevin It seems you have a choice – avoid financial planning – they are all scams and you can do it yourself. Forget abour mortgage reduction, insurance, investment advice and do it yourself.
OR
Purchase some knowledge (ie – a financial plan that doesn’t cost nearly as much as hiring a financial planning firm) and get the assurance of knowing you’ll have X amount of dollars in Y years. Mortgage acceleration is part of any smart financial plan – just do it all yourself.
You continue to speak in concepts rather than providing evidence. I was using financial planning as an example.
Would I avoid financial planning? Absolutely not. But if you call a fee-only financial planner (that charges by the hour) they will likely give you a rate over the phone. This gives you something to base an initial decision off of.
I never said I wouldn’t use financial planning.
Insurance is another great example. You don’t need an agent. I wrote about the benefits and costs of having an insurance agent in the past. Bottom line is if you need help because your claim is moving slowly your insurance agent likely can do nothing to help you. This is why I shop for insurance quotes online and go with the lowest reputable quote.
Are there areas of expertise I am willing to pay for? Absolutely. I take major car repairs to a certified mechanic. But I make an informed decision first by doing research on how much the repair should cost, getting quotes from several shops, etc. I still end up taking the car to the mechanic, but I don’t go in blind. Does that not make sense?
These type of plans, from what I’ve read (which again I admit I am not an expert in), revolve around getting a HELOC, depositing 100% of your paycheck into an account that pays down your mortgage as soon as the money hits the account, then you draw off your credit line to fund your living expenses.
This leaves you open to interest rate fluctuations and the possibility that the bank closes or reduces your line of credit (which has been in the mainstream media lately). You are trading one debt for another… and the one you are trading for can have an interest rate that fluctuates grandly. Yes, your overall mortgage balance is likely lower at the end of the month (assuming you spend less than you earn — and Americans are bad at this, apparently) than at the beginning, but you’ve got a credit line floating out there with a majority of the difference funding your living expenses.
Provide evidence to back up your claims. How does your system work? Provide an example. Illuminate me to the mystery system that solves all debt problems.
Kevin- Do you walk into a McDonald’s and ask them to prove they use real beef? Do you ask the gas station attendant to prove they are selling real gasoline at the stated octane rating? You want me prove my debt reducing system is not a scam? Prove that it is.
Now, please except my apology for getting that out of my system. It is just frustrating to me that people call something a scam just because they don’t understand it.
You bring up very good points. Can you do something similar to what we can do for you? Can you save a lot of money by using your money differently? Yes. We just make it easier. And we do it better.
Can people file their tax returns by themselves? Yes. Do they? Many people chose not to. With some help they can get more money back and save themselves some time and frustration. Sort of like the mechanic. So can you do something like what we do without paying us? Of course. But most people won’t.
So, I hope you were serious when you offered to take a look at what I sell. Here is a link where you can learn all about it. You don’t need to enter any personal information. And there is no link that goes to any particular independent agent. (I won’t even know you were there.)
[Link removed]
Enjoy your education.
@kevin – no, you are self sufficient, and you want to be sold – on something. I’m not selling anything. Personally, there’s too much evidence that shows that most people will be financially well off if they:
1. Adopt a plan that prioritizes mortgage reduction with interest reduction. (no, you’re not trading one debt for another – you’re trading higher monthly interest for lower monthly interest in absolute dollars)
2. Buy life insurance
3. Have a financial plan that incorporates both.
I believe in this – if you have other beliefs, follow them. I’m only saying that this type of plan is easy for most people to follow and is a conservative way of achieving risk-free wealth.
Steven the simple fact that you think there is a risk-free way to achieve wealth negates any argument you’ve made here.
I’m not arguing that people aren’t better by paying down their mortgage (“prioritizing mortgage reduction”)… or by buying life insurance… or by having a financial plan.
I am arguing that spending $3,500 for “sophisticated software using algorithms” (please… this reeks of scam) is not a good decision. If you want to track your money like this, go buy Quicken for $70 (2% of the cost), and set up an automatic payment of 100% of your extra income.
That is what this program does for you, but it charges you $3,500 for it ($2,500 of which goes to the salesperson — no wonder they are pushing it so hard).
Sorry guys, I’m not biting. Thanks to your continued push I’ve done just a little bit more research and discovered quite a bit of information about the scam that is United First (sometimes called the Jubilee Project, U1st, etc.)
For my readers, here are some great links listing out why this is a scam:
Fat Wallet discussion w/208 comments full of great information
Another FatWallet discussion
Another website breaks down why this is a scam
Another FatWallet Analysis
Another great FatWallet comment about a guy that was getting pushed by a salesperson to use his “tools”
The focus around these things is the salesperson pushes you to say “well most people won’t do that” “most people aren’t disciplined” to make the $3,500 software seem worth it. If they won’t do it on their own what makes you think they will use your software? Because it is completed automated? (Last time I checked I could setup automatic extra payments to my mortgage on my own.)
These programs also disguise the fact that you are using every cent of your extra income to pay down the mortgage. Not only is this perhaps not a good idea for everyone (should you be saving more for retirement, do you want 100% of your money tied up in your house), but you can do that on your own without paying $3,500.
The reduction in principal is tied directly to your extra payments not to having money sitting in an account before you withdraw it on the HELOC.
HELOC = risk. HELOCs have been frozen across the country. Or canceled. Or drastically reduced.
These programs are garbage. Please do not continue to promote them on my blog.
Thanks you Kevin for posting the links for your research into how these are scams. I have been enjoying reading the back and forth going on over this topic. Personally I am surprised that they will not either admit what some of their method is, or just disappear.
FYI, I completely agree with you on your points.
@Kevin: Ok, possibly you’re fixated on the price that a certain company charges for their system. Quoting your email, ” I am arguing that spending $3,500 for “sophisticated software using algorithms” “…….
Let me stop here and address this: Almost all banks have bi-weekly (traditional) mortgage accelerators that are priced at about $500. In addition, there are several companies who provide the “Australian” model for under $500.
You can easily find them online.
So, if you are saying that the company whose price is $3500 is a “scam” (your description), you perhaps will not think so negatively about those who provide mortgage acceleration systems (traditional bi-weekly or Australian model) – including most banks.
Now, one more thing you should recognize, and it’s a big thing – virtually all the naysayers to any type of mortgage acceleration system are……….MORTGAGE BROKERS!!!!
I’ve checked around and this is universally true. All the loudmouths denigrating any type of mortgage accelerator are mortgage brokers!
Now, if you really want to know what a scam is (IMHO), it’s a mortgage broker telling people not to adopt a mortgage acceleration program (which requires no refi).
This is so obvious – the real “scam” artists are the mortgage brokers (who make a $5000+ commission on selling you a loan. Of course they’re working overtime to badmouth the system – maybe I would, too, if I were one of them (I’m not).
Where is the indignation in that?
Ok Kevin, who are you gonna believe – someone looking to get you into more debt (and make $5000 doing it) – or someone trying to get you OUT of debt and charges under $500??
@Philip: Please read my last post to Kevin. In one of his posts, he says:
“I’m not arguing that people aren’t better by paying down their mortgage (â€prioritizing mortgage reductionâ€)… or by buying life insurance… or by having a financial plan. ”
Now, first of all bear in mind that I’m in favor of a mortgage acceleration system because it provides a plan that “prioritizes mortgage reduction”
I also know of several good ones that are priced at under $500 – and are easier to use than the $3500 company – I don’t advocate spending that kind of money.
Lastly, Kevin mentions he doesn’t believe in risk free wealth – and that may be his real issue – believing it cannot be. However, using a mortgage acceleration system (I like the Australian model) and buying life insurance ARE the keys to risk free wealth. I can provide proof – to your accountant if you wish. I’m not selling you anything. Then, let HIM advise you – you’ll be quite surprised.
Kevin, if you’re reading this, I extend you the same offer.
Steven I highly encourage you to take an Economics or Finance 101 class if you truly believe in risk-free wealth. Risk and reward are a fundamental concept of how the economy works. (For a very basic example, why would anyone invest in stocks because bonds are much safer? You take more risk, you expect more reward.)
Term life insurance also does not lead to wealth. It’s insurance. If you are talking whole policy insurance that is a different ballgame and the math has been proven that you are much better off getting a term policy (for much less) and investing the difference on your own.
In regards to mortgage brokers: you keep moving the target around. First it was “no one has the discipline to do this on their own”, then it was the software is worth the cost, then it was it doesn’t cost $3,500, then it was mortgage brokers are the bad guys.
A mortgage broker wants to get you into a loan and collect his commission up front. That has nothing to do with when you finish the loan. Why would the mortgage broker care if you finished your loan early? His clients would be thrilled and he would get a ton of referral customers. Would he lose out on potential refi business? Sure, but he is risking that anyways. He would be happy to give up a potential refi in return for five referral customers… that lead to five more… that lead to five more (because all these customers are SO happy to be paying their mortgages off early!) This argument does not hold up.
Additionally who said you should use a mortgage broker in the first place? I’m not supporting paying $5,000 for a mortgage broker unless he finds you an interest rate (that you would otherwise not have access to) where you will quickly recover those costs.
Again you are moving the target. It isn’t mortgage brokers that are warning against this. It is the mainstream media, bloggers, financial advisers, etc.
Bottom line: these systems allow you to put every last extra cent you have toward your mortgage. You can do that yourself. (As we have discussed that may or may not be the best thing for you.)
These systems rely on a HELOC to fund your living and/or emergency expenses. You can do that yourself (although it is quite risky because you are relying on a loan for your expenses, and if the bank pulls the loan you are out of luck).
Your argument does not hold up. You have provided no solid evidence. At least Steve Orrin provided some information to me (although it was a ridiculous webinar). You have provided nothing and you have consistently moved your argument around.
A ridiculous webinar? I could give you far more information and testimonials but what’s the point? Your mind is made up and you would delete the links anyway. Continue helping people your way and I’ll continue helping people my way, somewhere else.
Steve here are my issues with the webinar:
Interesting that you ignored all of the evidence I have provided about the overall capabilities of the program (the FatWallet forum threads that go through these types of programs and examine if it is worthwhile, discover that it is not, and share that information).
Applying every cent of your additional income to pay down a mortgage is a questionable idea depending on your other goals. I think you realize there is a great deal of evidence against your firm specifically (U1st) and have no hope of not convincing just me, but my readers, that this is a good idea.
Because it isn’t.
I’m late to this party, but I am a loan originator for a correspondent bank, and I discourage clients from purchasing this product. Today I googled mortgage accelerator, looking for more education to show borrowers why this is a scam. Thank you for adding your original post, and for linking to the other websites. Very helpful for my clients.
As an LO, I don’t care about the refi – i focus on first time home buyers, mostly with minimal down payments. Therefore 95% of my clients don’t even qualify for HELOCs or unsecured lines of credit. Most of them have very minimal emergency funds. I discourage them from paying any fees for bi-weekly payment services too. Instead, I tell them to set up automatic bill payer in their checking account, and send them links to the charts online at Kiplinger and BankRate to decide for themselves if they want to make 13 payments / year, and how much extra to pay.
It has nothing to do with me upset that they might not refinance. Most of them won’t be eligible for refinance for at least 3 years anyway, they need time to build equity, and for property values to stabilize and hopefully modestly turn around.
That said, I probably get 3 calls a week from U1st and similar program reps, trying to convince me to pay $179 to ‘sell’ their product. First, any company that requires you to pay up front to sell for them, is a huge red flag. Second, there are zero licensing, background check, credit check or interviews to sell this product, which is essentially an expensive financial service – I have to be licensed, a CPA is licensed, and so are Financial Advisors….but not MMA advisors. Weird, isn’t it? Finally, 2 clicks with Google and you can read the Australian SEC’s complaints against MMA’s – especially the ones challenging the financial calculators in their software / online system. Forth – anyone advocating borrowing against a HELOC or unsecured Line of Credit in this financial environment is bat-crazy. Lines are being cut, closed and interest rates hiked. Fifth – everyone has life issues, and putting ALL your discretionary income against your mortgage when you have very little emergency funds to begin with….that is financially irresponsible….leaning towards unethical.
When I get calls about this, I usually pull up the borrower’s loan, and remind him/her of the PITI + MIP. I remind them if they double the “P” it’s not a very big jump in monthly payment, and the life of the loan savings in interest are significant.
Anyway, thanks again for your original commentary.
Thanks for the advice and I agree you don’t need to pay for an acceleration program. Question. Do you need to notify your mortgage Co. to apply the extra payment amount to the principal or will they do that automaticly?
Don,
Depending on who has your mortgage it can either be easy or slightly more complicated. My mortgage is with Wells Fargo and I was actually surprised that they prominently mention mortgage acceleration on their website (no fee) and how easy it was to setup one of their plans. I was able to setup my automatic withdrawal to include a principal only payment; I chose a total payment of $1800. The other thing I like about their site is that I can pay online and send any additional principal only payments.
Here is an example of a previous payment:
11/23/09 PRINCIPAL PMT ( Details) $90.00 $247,998.96
11/02/09 PRINCIPAL PMT ( Details) $131.10 $248,088.96
11/02/09 PAYMENT ( Details) $1,668.90 $248,220.06
The 1668.90 is my PI+T($250) no additional “I” for me (zero down VA loan), the 131.10 is the $1800-PIT and the $90 is another web principal only payment I made. It is my understanding from some of my friends that their mort. companies don’t come close to this type of ease of use, as a matter of fact, one of my friends was hit with a late payment because he tried to do a bi-weekly on his own but the bank would not accept anything less than full payment on the 1st (I think the bank offers a PAID bi-weekly program, I would have to ask him).
It was my understanding that some banks will merely hold what you send them (if not on the first) until the first before applying payment so you definitely want to call your mortgage company and ask about their policies.
Thank you all for sharing such insightful information. I am currently enrolled in a mortgage acceletator program which I pay a one time fee of $39.00 several years ago. To be honest, I was so excited that I was going to be saving so much money over the life of my loan (or so I thought), that I don’t even recall if there is a monthly processing fee.
However, in light of all the knowledge and inforamtion I have received today, I plan to cancel mine and use the example provided to pay my mortgage.
Respectfully,
Judy
Seriously… First things first… Stop wasting time reading this and go get EDUCATED. Boo hoo… you bought into something that someone told you was great and you could have been doing this on your own all along. So really… whos fault is it. If you really want to know what “Mortgage Acceleration” is, stop listening to people who don’t know. I have a mortgage that allows me to merge my income and savings accounts to pay the loan off in a little over 11 years. HOW CAN IT BE.. I must be a scam. the government will take your home…. aliens will visit you. Wake up america. REAL Debt acceleration requires you to let your money work for you counteracting the accrual of interest. The real problem is… that everyone wants the american dream and they are willing to do anything to get it. Go into debt, buy stuff that they know good and well that they cannot afford, and once they have money… spend it like it’s their last day on earth. All I’m saying is get the facts. Bi weekly payment programs are NOT debt acceleration. If you would like to know what the real deal is.. feel free to email me.
So what’s the magic? What’s the special product?
I’m guessing you pay a majority of your income onto the loan and pull your living expenses out on a HELOC.
I’m not saying doing that won’t work — what I’m saying is you don’t need to pay $3,500 for “special software” to set up the acceleration for you.
The programs also hide the fact that you’re applying every last possible cent you have to your mortgage balance. You have no savings — you are relying on the home equity line of credit if something were to happen and you need savings.
You can setup a HELOC with your bank on your own, and you can apply every last cent you own to your mortgage on your own. You don’t need to pay thousands of dollars for “software” to have someone set it up for you.
I have a 6% fixed with 22 years remaining. My HELOC is now at 3%. I figured I can pay off my fixed in 1 year and 8 months using weekly payments from my HELOC and my regular monthly from regular income. The HELOC will then be paid off in about 6 years just using a mortgage spreedsheet.
Thanks.
PS: No need to pay for what you can do yourself.