Equity accelerator program

ss2002 Posted: Sep 17, 2003 08:45 AM

Equity accelerator program

We just got the paperwork to sign up for an equity accelerator program through our mortgage bank. Is anyone participating in this??

Instead of paying your mortgage once a month, you pay half the monthly charge every two weeks. At the end of the year you'll end up making two or three extra payments.

The bank explained that our mortgage will be paid in like 25 years instead of 30, due to the extra payments. The extra payments = quicker equity build.

It sounds like a good deal...I'm curious, though, why only one homeowner I know is doing this!

Fran M Posted: Sep 17, 2003 09:16 AM

Re: Equity accelerator program

You can probably do this on your own. Just pay some extra money each month. If you do it on your own you have the flexibility of paying only the true payment amount or the true plus extra amount. I keep receiving that too but the bank wants a fee to set it up. Why would I pay a fee for something that locks me in to a higher payment and that I could do myself for free?

Lisa Rose Posted: Sep 17, 2003 09:27 AM

Re: Equity accelerator program

we actually could do this but I didnt want to commit to the higher payment, so we pay 1/12 of our payment extra each month...so at the end of the year we have paid on more payment. I was told it will knock 7 years off of your mortgage if you do this.

Wendy Posted: Sep 17, 2003 09:30 AM

Re: Equity accelerator program

I agree with Fran. Why have the added pressure of having to make 2 payments a month when you can just add extra to each monthly payment? That is what we do. We pay $100 extra per month and it goes directly to the principal (or is it principle?) rather than to interest. In the event that money is tight and we can't manage the extra we try to put in a little more the next month. I think that's much easier on the budget.

Kathi Posted: Sep 17, 2003 09:45 AM

Re: Equity accelerator program

If you make 1 add'l payment throughout the year it does knock off about 7 years on your mortgage. We considered bi-weekly payments, but, like Fran said... why pay a fee and lock yourself into HAVING to pay that add'l money?

Paying bi-weekly simply equates to making one add'l payment (26 weeks = 13 monthly payments). Making that extra payment at your own pace is more advantageous, IMO.

ETA: Wendy, it is 'principal'...

dgtlsunshine Posted: Sep 17, 2003 10:49 AM

Re: Equity accelerator program

Maybe I did not understand this right. Are you saying for example your mortgage is $2000 you would actually make an extra payment of $1000. Would the $1000 all go to principal?

The reason I ask is b/c our mortgage is about 2k and when I checked our mortgage breakdown only about $300 goes to equity. To pay off your mortgage early all you really have to do like say in my example is make an extra payment every month of $300 and that would actually count as two mortgage payments.

It just seems better to me to do it on your own than to pay $1000 extra a month. Unless your mortgage is really high and about $1000 does go to principal.

Kate Posted: Sep 17, 2003 10:56 AM

Re: Equity accelerator program

We did not enroll in that program.
I pay $100 extra towards the principal every month.
In the event that we cannot spare it, no penalties.

Not sure how much it'll actually shave off, but I guess it helps.

Jenn P Posted: Sep 17, 2003 11:46 AM

Re: Equity accelerator program

I do pretty much the same as everyone else: every month I round up to the next even hundred and it's approximately an extra grand a year towards the principal.

Marcela1654 Posted: Sep 17, 2003 12:06 PM

Re: Equity accelerator program

I didn't even know they had a program like this FH and I are going to do this on our own. We want to pay at least one additional payment per year

yabbobay Posted: Sep 17, 2003 12:13 PM

Re: Equity accelerator program

I would just pay the extra myself...

also this program could screw you if you change jobs and get paid bimonthly...instead of every two weeks...

Karen H Posted: Sep 17, 2003 01:29 PM

Re: Equity accelerator program

Bankrate.com lets you calculate an amortization schedule which shows how much of your payment goes to principal and interest every month, based on what you enter as your loan amount, interest rate, etc.

You can then enter variables, such as paying X amount extra each month, or a once a year lump sum, and it shows how much sooner your mortgage will be paid off (and how much you save in interest! That's the big savings)

Also, if each month you pay make an extra payment amount equal to the following month's principal then I think the mortgage is paid off in half the time - 15 years for a standard 30 yr. mortgage. It's fairly easy for the first 5-7 years, but gets to be a big extra payment as you get further into it and your pricipal is starting to be more than the interest.

Fran M Posted: Sep 17, 2003 02:07 PM

Re: Equity accelerator program

Lets also keep a few thing in mind when considering equity acceleration or early mortgage payroff.

1.) You mortgage interest is probably the best tax break you get. Acceleration doesnt lessen this break it does disappear when you have finished paying off your mortgage.

2.) Homes continue to appreciate in value on LI so you are always 'accelerating your equity'.

3.) If you are not planning on paying off this mortgage the overall savings in interest has no effect. Could you make better use of this money today?

I think you see more people that are on their second or maybe final home doing this, generally because they are older and dont want to be paying a mortgage when they are 70!

ss2002 Posted: Sep 17, 2003 02:13 PM

Re: Equity accelerator program

Thanks everyone! I knew I'd get good feedback from you all!!

yabbobay Posted: Sep 17, 2003 04:11 PM

Re: Equity accelerator program

fran brings up good points...

my parents never wanted to pay off their house b/c the bank took care of all the taxes and paper work...now my mom hates to go to town hall twice a year to do it herself...

Karen H Posted: Sep 17, 2003 04:33 PM

Re: Equity accelerator program

Fran - you got that right! Being 'up there in years', DH and I are trying to get this house paid off before we retire. And it probably will be the only place we have on LI, with plans to sell and retire in another state with cheaper taxes and housing costs.

Another reason for not paying off too fast though, is that if interest on savings goes back up over what your loan interest is, you're better off having the money in the bank.

As you said, everyone's situation differs and there are a lot of factors to consider.

michele31 Posted: Sep 17, 2003 04:36 PM

Re: Equity accelerator program

did you have to pay a fee for this? I know that a few months back we got a letter about this, but there was a charge to do this and we didn't want to pay for something that we could ourselves.

ss2002 Posted: Sep 17, 2003 04:51 PM

Re: Equity accelerator program

OK, I just spoke with a friend who is participating in the program, and now I'm more confused!!

He pays 1/2 his monthly mortgage twice a month. He and the bank calculated that this will result in him paying his mortgage off 7 years sooner, with a savings of lots of money.

If you pay an extra mortgage payment each year, you'll end up reducing your mortgage term by 2 1/2 years. They calculated the $$ saving much less than if enrolled in the accelerator program.

Sigh. Does anyone understand this enough to explain it to me? Why doesn't an extra mortgage payment each year = paying 1/2 twice a month?

Yes, Michele, there is a fee involved in setting this up. I believe my bank charges $ 200 or so.

Karen H Posted: Sep 17, 2003 06:35 PM

Re: Equity accelerator program

I think it has to do with the interest.

Your total payment amount for principal and interest remain the same. You pay interest on the loan amount, and any remaining amount goes towards the principal loan amount.

As the principal slowly pays down the loan, the interest on the balance of the loan decreases, leaving more available to pay off the principal.

By paying twice a month, you pay off a small portion of the loan sooner, accrueing less interest. Since you have less interest to pay (since the loan is getting smaller) a larger portion of your payment goes to the principal, satisfying the loan sooner.

A payment once a year means you are paying interest on the loan balance up until you make the payment. By paying off small amounts of the loan sooner, you reduce the interest owed.

As everyone has stated, you can do this on your own by making extra principal payments every month. You don't have to pay a fee to set this up and it gives you the flexibility of not paying if cash is tight.

ss2002 Posted: Sep 17, 2003 07:16 PM

Re: Equity accelerator program

Karen, thank you for taking the time to spell this out for me.

Much appreciated

yabbobay Posted: Sep 17, 2003 08:10 PM

Re: Equity accelerator program

if you do try to pay off your mortgage earlier on your own...make sure you write on your check...'pay extra to principal' otherwise it will go to the interest

that goes for any loan