I have a 30 year fixed mortgage that just started in the Fall of last year. I have been receiving offers to sign up for "The Equity Accelerator" program which I believe is a third-party company.
The program claims that by having my monthly mortgage payment that is due the first of every month paid twice monthly instead (50% of the monthly payment X2 per month), I would save in the ballpark of $80,000 in interest payments over the life of the loan and have it paid off in 25 years instead of 30.
It would seem this would work because instead of paying...let's say $2,000 on the 1st, I would be paying $1,000 on the 15th and another $1,000 on the 1st, therefore for 15 days I would not be paying interest on the first $1,000 I paid. Multiple that 15 days of not paying interest on half your mortgage payment each month, for 30 years of months and VOILA! $80K in my pocket. Or so it would seem.
In researching this online, there seems to be a lot of resistance to this plan. First, because it charges $295 up front and then a $5.42 fee each month. Certainly I would not expect it to be free, but there were complaints anyway, mostly about the monthly fee. Second, everyone pointed out the obvious fact that anyone could do this themselves, or alternatively, could make 13 payments a year instead of 12, or take what they pay per month, divide by 12, and add that to their payment each month, or do both, or on and on and on.... Third, someone commented that the program does not actually make two payments split up like I describe above - it just collects it and makes the payment on the 1st just like I would anyway. Of course, I don't know how that could be possible and still save me money.
I noticed something else. In making my payments each month without this program, I noticed that as soon as I make a payment, I get the next month's statement from the bank. So as soon as I got it, I paid it. And then I immediately received the month following that month's statement. I was at the point where I had paid three months of mortgage in advance. This taught me that the bank does not wait until "the month" the payment is due to send the statement, but will send them as fast as you pay them. I am curious if this is just as advantageous in reducing total interest because if I am paying, for example, December's payment in September, then that means I will not be paying the interest on that December payment that I would have accrued in October and November. If anyone agrees that this is a true statement, please let me know.
As far as the program goes and its detractors, I agree that people could just make two payments themselves but people have to be disciplined enough to make those two payments (or any of the other ways to do it yourself) on their own, and most aren't, so paying for an automated service could be useful in that regard. That said, I would be concerned that the bank would not know what to do with a "half-payment" if I made it by myself without the program. They might just make that an "extra" equity payment slapped on the back of the mortgage and the total mortgage would still be due on the 1st.
Lastly, if it is such a good idea to split a monthly payment in half, why not in fourths? Hell, why not daily? We've all played with interest calculators and seen the difference in accrued interest when we try compounding it quarterly, monthly, weekly or daily. Considering the electronic age we live in, why is there not a program that does an automated electronic daily transfer eliminating interest on that amount everyday? Just a thought.
Any input or thoughts would be appreciated on the concept of the equity accelerator program or other means of reducing total interest.
The program claims that by having my monthly mortgage payment that is due the first of every month paid twice monthly instead (50% of the monthly payment X2 per month), I would save in the ballpark of $80,000 in interest payments over the life of the loan and have it paid off in 25 years instead of 30.
It would seem this would work because instead of paying...let's say $2,000 on the 1st, I would be paying $1,000 on the 15th and another $1,000 on the 1st, therefore for 15 days I would not be paying interest on the first $1,000 I paid. Multiple that 15 days of not paying interest on half your mortgage payment each month, for 30 years of months and VOILA! $80K in my pocket. Or so it would seem.
In researching this online, there seems to be a lot of resistance to this plan. First, because it charges $295 up front and then a $5.42 fee each month. Certainly I would not expect it to be free, but there were complaints anyway, mostly about the monthly fee. Second, everyone pointed out the obvious fact that anyone could do this themselves, or alternatively, could make 13 payments a year instead of 12, or take what they pay per month, divide by 12, and add that to their payment each month, or do both, or on and on and on.... Third, someone commented that the program does not actually make two payments split up like I describe above - it just collects it and makes the payment on the 1st just like I would anyway. Of course, I don't know how that could be possible and still save me money.
I noticed something else. In making my payments each month without this program, I noticed that as soon as I make a payment, I get the next month's statement from the bank. So as soon as I got it, I paid it. And then I immediately received the month following that month's statement. I was at the point where I had paid three months of mortgage in advance. This taught me that the bank does not wait until "the month" the payment is due to send the statement, but will send them as fast as you pay them. I am curious if this is just as advantageous in reducing total interest because if I am paying, for example, December's payment in September, then that means I will not be paying the interest on that December payment that I would have accrued in October and November. If anyone agrees that this is a true statement, please let me know.
As far as the program goes and its detractors, I agree that people could just make two payments themselves but people have to be disciplined enough to make those two payments (or any of the other ways to do it yourself) on their own, and most aren't, so paying for an automated service could be useful in that regard. That said, I would be concerned that the bank would not know what to do with a "half-payment" if I made it by myself without the program. They might just make that an "extra" equity payment slapped on the back of the mortgage and the total mortgage would still be due on the 1st.
Lastly, if it is such a good idea to split a monthly payment in half, why not in fourths? Hell, why not daily? We've all played with interest calculators and seen the difference in accrued interest when we try compounding it quarterly, monthly, weekly or daily. Considering the electronic age we live in, why is there not a program that does an automated electronic daily transfer eliminating interest on that amount everyday? Just a thought.
Any input or thoughts would be appreciated on the concept of the equity accelerator program or other means of reducing total interest.
