My bank sent me an “Equity Accelerator” flyer. The concept is by paying half my mortgage payment every two weeks instead of the current monthly installment, I will reduce the time to pay off my loan, preserving equity and saving interest payments.
Mortgage math is tricky.
For example, my first loan’s payment was determined by asking the “mortgage lender.” He’d stare back at me, uncomfortable at the question but, seeing I wasn’t going to leave his office without an answer, would slowly slide the top right desk drawer open, make a furtive glance at its contents, pause for dramatic effect, then report a number. You can imagine how much exercise his right arm got when I wanted to vary different parameters like term, points, and downpayment.
I can’t fit the “mortgage lender” or his desk in this blog. Indeed,
the actual calculations I’m about to do are vastly simplified. My friend Jim rattled off four additional considerations that make the real number trickier to pin down. I’ll explore these in the comfort and privacy of my own spreadsheet, but for the sake of today’s discussion, we agree the simplified numbers lead to the same conclusion: don’t do the Equity Accelerator plan.
Accelerated payment plans work because there’s an additional payment each year. On a very simple level, this reduces a 15-year mortgage to 13.8 years:
52 weeks/year / 2 weeks/year per half-payment = 26 half-payments
26 half-payments * 1/2 full amount/half-payment = 13 full payments
15 years * 12 payments/year / 13 payments/year = 13 years, 10 months
The extra 14 payments are applied to the principal portion of the mortgage. I will wave my hands and say that on my current mortgage, this would save me $5,000 in interest payments on the life of the loan — web hosting fees through 2016! This is good.
The reason I say Feh! is the Equity Accelerator plan imposes a lot of fees:
$49 to sign up
+ $9/month to participate * 15 years * 12 months/year
$1539 in fees over a 13.8 years.
$1539 / $5000 = 30% fee.
Many fixed rate mortgages, including mine, permit pre-paying principal. Because I can do this myself, I see no reason to pay the fees for the “convenience.” It’s doubly crummy because I already have direct debit set up with my mortgage company. The program’s name would more accurately be Fee Accelerator.
Most modern mortgages allow prepayment without a fee. The “accelerators” are a scam. If you get paid biweekly, it’s probably worthwhile to make your payments match.. if you are paid monthly or twice monthly (twice monthly != every other week), a monthly basis matches your finances better.
If you really, REALLY need to pay the fees, let me know; I’ll accept them and pass the rest to your mortgage. I’m a nice guy like that.
-ted
Yeah, I went through the same process and the fees were definitely the turn off – besides the fact that I can send in extra money any time I want. Scam, big time.
my mortgage payment is 887/month IT IS A 15 YEAR MORTGAGE AND I WANT TO PAY IT OFF EARLIER. HOW WOULD I ACCOMPLISH THE SAME WITHOUT THE ACCELERATOR PLAN? I NEED YOU YO BE VERY SPECIFIC. “THANKS”
I don’t see why you don’t see that this is a 30% fee on the savings that is applied as a fee of convenience. It still saves you money vs paying monthly – and the bank will not allow me to setup my mortgage to auto-pay on a twice/month basis. If it would… then we’d all be happy but alas, we’re limited to letting this 3rd party company do it. My question is if they can do it, why can’t we?
$49? I just got junk mail from these clowns and they want $295!!! In 5 years, they claim I will have saved $691 in interest but by then I will have paid $1,000. Screw Equity Accelerator – take the money you’d waste with them and pay a little extra principal. Better yet, just make the scheduled payments and concentrate on paying something else off early like your 18% credit cards or 7% car note.
Very interesting and enlightening… I signed up for the service and assumed it was administered through Washington Mutual. I wondered why I was charged $49 to set it up so they got my money easier, but now I know! (I TA’d real estate financing so you’d think I’d know better!)
Don’t feel bad, I too was suckered and can’t believe Chase Mortgage company influenced me to sign up. It was as if they were endorsing [equity accelerator dot com]
I almost bit on this one. I thought that the company would apply the payment INSTANTLY thereby knocking my interest payment down every other week and thereby apply more money to my principal. However, since they just hold on to the $s until the end of the month anyway there is no benefit. Just overpay folks. Take your mortgage payment, divide by 12 and tack the resulting amount on to each payment that you make. Voila, you have done it, an probably for less than you spent for a nice meal out with your significant other!
Just think of how much money aside from fees that this is scamming from people. If 1000 people participated and their bi-monthly mortgage payment of $600 is drafted on the 1st of the month and sat on by the accelerator program for the remainder of the month, how much interest is the company earning and where is it going? As a customer I can’t recall it being applied to the loans principal. It’s not being returned the customers in a check either? eg. 1000×600=60,000 @ .03%=$18,000
Working with Washington Mutual is a night mare. Trying to find answers is almost impossible. I have used Equity accelerator for 5 years and there have been no problems. Last month the mortgage company sent me a deliquint notice. I checked my account and the money had been subtracted. I called multiple numbers and no one knew. Finally got a number to the equity accelerator program at Washington Mutual, went through multiple menues and was cut off. Very unfriendly company and I still do not have my mortgage payment straight. My next step is canceling the agreement by going to my bank.
I did bite on this one and I got bit back ten times harder. I wish I had known then what I know now. I would RUN from Washington Mutual in any way you can. Also file with the BBB about them I was told they are getting quite a few complaints on file.
Hi Jim. To be honest, even with the 30% in fees, saving money is saving money :). Here’s the thing though, is it really worth all of this hassle to save $3,500? Personally, if this was my only option I would have to pass. I am a Equity Accelerator Consultant. I do not recommend the Equity Accelerator programs offered by banks for the above reasons. However, I do recommend a Money Merge Account or MMA. With a MMA, you are able to pay off your mortgage in 1/2 the time or less (5-12yrs. is average) without altering your cash flow or lifestyle. Definitly beats a measly 5 yrs. and $3,500, oh and of course the hassles. The MMA allows you to pay huge amounts towards your principal therefore acts as an interest cancellation program. Clients save on an average interest around $100,000. Where does the extra money for principle come from? The bank! I know it’s a bit to chew, however like you said banking math is complicated. Feel free to get in touch me. I can help you understand how this is all possible. Best of luck!
I wonder how the payments are processed? If you send a check to WAMU, is it processed automatically by some machine or does some person have to check it in and post it to the account. I’m wondering if I don’t want to cut that 13th payment per year in 365 amounts and use my check-free service to send that amount to WAMU daily so they have to invest that amount of time in processing my payments? If more people did that, it could cost them enough money that they would consider enabling customers to set up their own payment timings on their website, with the frequency that works for them?
One of the things that is not being considered is that when you pay off a fixed rate mortgage early you are not getting any benefit UNTIL it’s been paid off! You are giving up your money, not getting any interest on your funds and letting that money sit there earning NO interest. Any extra money paid off on a fixed rate mortgage loads off the back end, not off the front end. Your interest/principal ratio does not change, you’re simply trimming off the back years of the loan (which is when you get the benefit of an amortization schedule). If you have an adjustable it makes sense to put those funds into your mortgage PROVIDING you have no other higher interest auto or credit debt as you only pay interest on the outstanding balance and will actually lower your monthly payment, freeing up more money to pay off the loan. If you have a fixed rate loan, set the money aside in an interest bearing account. When the balance reaches the balance outstanding on your loan then, perhaps, pay it off. Rates are so historically low, and they are moving up, it will make more sense to keep those funds in a CD or IRA than it would to load it unto the back end of your fixed rate mortgage where it saves you nothing until the later years of your mortgage. You will actually pay a fixed rate sooner sooner if it’s put into an interest bearing account.
The way this works is they take out your payment every 14 days. So your full payment is being applied every 28 days. If you divide 365 days by 28 days then you equal 13 months. So basically all you are doing is making one extra payment per year. Your bank probably does not apply the payment until the FULL payment is received meaning that making payments more often (bi-weekly) is of no use. If the simi-monthly payment was applied immediately then that would really knock down the interest. However, that is not the case here. As someone above mentioned, forget the Equity Accelerator scam and just take your monthly payment, divide it by 12 and add the extra amount to your monthly payment. You will get the same benefit as with the Equity Accelerator except you will not be paying fees. Also, check with your bank to make sure that there is no penalty for early pay off.
I know this is a WAY old post, but what I noticed on my mortgage was that I am charged $11 to make on online payment (which would be $22 per month doing my own 1/2 payments to match my paychecks), which would add up to almost $4000 over a 15 year period (I have a thirty year mortgage). This is my first mortgage, and I have found fee after fee involved in all things (of course, I already knew banks / credit card companies did this all the time so I’m not honestly surprised – I still feel taken advantage of though by “the man”), you just have to take what you can get and move on.
I used the Equity Accelorator plan until I realized it was a total scam. They were withdrawing money every week from my checking account but only paying the bank once a money. Additionally, I was paying extra towards principal that they were holding onto, interest free, and then making additional deposits to my mortgage company every three months. This is fraud. I am now trying to get all my money back. I would be further ahead if I had just made the payments myself.
I want to file a suit in California. Does anyone know who I can contact? Additionally, Equity Accelorator was not even making the payments on time.
Be aware that Most modern mortgages allow prepayment without a penalty and Most lenders will allow you to setup up your mortgage to auto-pay on a twice/month basis.
That being said I want to eliminate some major confusion online.
Equity Accelerator is an optional service offered by PayMap at http://www.equityaccelerator.com/ea/learnmore.jsp?key=ea
This is a third party option that realtors or lenders might suggest for those looking to build home equity faster. Yes,. there is a loan servicing fee.
$295.00 enrollment with $5.42 service charge.
or a waived enrollment/$49 and $9.00 service charge.
Many home borrowers are more educated and becoming more familiar with Payment Acceleration principals and might ask how this can be of benefit to them.
Benefits Would Include:
Substantial Interest Savings
Home Equity Build-up and Term Reduction
Most homeowners save over $33,000 in interest payments.
Payday-to-Payday Withdrawals
Select from weekly, biweekly, semi-monthly or monthly withdrawals on any business day. The Equity Accelerator withdrawals can be customized to fit your unique needs.
Electronic Payments
Avoid late charges and credit problems. Use the program to make sure your payment is on time, every time.
Lifetime Program
It stays with you for the life of your loan and any other mortgage you might acquire. If your loan is sold, or if you decide to refinance
Interest Earnings
In most cases, you receive interest on funds held in a custody account pending a full loan payment.
In response to FirstCapital, again, most people can do this on their own. Simply pay your mortgage company 1/2 of your payment every two weeks… or…pay $50-$150 more than your usual monthly payment every month.
We ourselves have just found out that Chase does not accept 1/2 payment every two weeks thus making Equity Accelerator nothing but a added debt to its users. We have also just recieved a pre-forclosure notice from Chase due to late payments made by Equity Accelerator. We have use EA for approx. 15 years and are now in the process of requesting records in order to see exactly how many late payments have been made over the last 15 years. This is going to be real nightmare.