From time to time, when I get my mortgage statement in the mail, attached is a pamphlet encouraging me to enroll in their Equity Accelerator Program. It is a service provided by my mortgage holder that makes extra mortgage payments each month by drafting payments out of your checking account. By doing this program, you will cut a few years off the length of your mortgage. In theory this is all good, but when you peel back some of the layers and get into the details, it is not that good of a deal.
How the program works is pretty simple. Every two weeks, half of your mortgage payment is deducted from your checking account and applied to your mortgage. That means that over the course of the year, 26 half payments are withdrawn. The 26 half payments equals 13 full payments, so you are making an extra mortgage payment each year. Over a 30 year mortgage that will reduce anywhere between 4 to 6 years off the term of the loan in addition to saving thousands of dollars in interest!
However, there are fees associated with using the service. Currently the program offered by my mortgage holder costs $9 a month plus an initial $49 start-up fee. Over the course of 20 years that would cost you $2,209 to use the program (240 months x $9 + $49). The good news is that you can pay extra on your mortgage each month yourself without any fees! If you want to make an extra payment over the course of a year, take your mortgage payment and divide by 12, pay that mount amount extra each month and watch the balance decrease sharply! I have created a helpful amortization schedule that will help show you how much more quickly you will pay off your mortgage if you make extra payments.
In short, the mortgage equity accelerator programs offered by your bank do help you pay off your mortgage more quickly. But, I would pass, do the extra payments myself and save the fees. Also, when you do it yourself you will be more attentive, it will make you more motivated to pay off your mortgage and you will start to make two or three extra mortgage payments a year instead of just one! Once you start getting to that point, in a few years your mortgage will be paid off in full and you will be able to relax knowing that you own your house free and clear!
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