Many companies advertise the mortgage acceleration program, promising to save you thousands of dollars in interest and cut years off your mortgage. Does it work? Is it worth it? These are the questions most people ask themselves and the professionals.
While everyone wants to pay off their mortgage as fast as possible, it’s not always worth paying a service to make it happen. You have to pay money to save money, which is a little bit of backward thinking when in reality, the money you pay to the acceleration company could actually go toward your mortgage and further your ability to pay it off faster.
Understanding Mortgage Acceleration Programs
There are two basic ways to accelerate your mortgage according to mortgage acceleration programs:
- Bi-weekly payments – You pay half of your mortgage payment every two weeks rather than making one full monthly mortgage payment. This turns into 26 half payments or 13 full payments (one extra payment per year).
- Home equity line of credit accelerator – You take out a HELOC and use the funds to pay your mortgage down. Let’s say you take out a $20,000 HELOC. You pay $20,000 directly to your 1st You then deposit every paycheck to your HELOC, basically living off the HELOC. Any money left over pays your mortgage balance down.
Mortgage acceleration companies charge for both services. The fees vary by company, but they add thousands of dollars to your costs, thus eating away at the benefits of accelerating the mortgage.
However, you may be able to accelerate your mortgage yourself and without any extra cost. Check out how below.
DIY Mortgage Acceleration
While mortgage acceleration companies claim to have the ‘secret’ to get you out of mortgage debt fast, it’s really not a secret. They are providing a service, which if you can’t trust yourself to handle on your own, may be worth it to you, but most people can manage it.
You can accelerate your mortgage in a variety of ways:
- Bi-weekly payments – Using the same method mortgage acceleration companies use, you can pay half of your mortgage payment every two weeks (aligning it with your paydays). Just read the fine print on your mortgage to make sure you don’t have a prepayment penalty. Most mortgages today don’t, but if you do, this may not be an option.
- Make one extra payment per year – If making payments every two weeks is just too much, consider making one full extra payment every year. You can do it at any point. This can knock off a few thousand dollars in interest and a few years off your loan.
- Pay an extra amount each month – Send in any extra money that you can afford on your mortgage payment each month. Choose an amount that you can afford consistently for the greatest results. For example, an extra $50 or $100 can knock thousands of dollars off your loan and help you pay it off faster.
- Apply windfalls to your mortgage – If you receive windfalls throughout the year, consider applying them to your mortgage. A few examples include tax refunds, commission checks, bonus checks, or inheritance money.
The key is to set up your own plan and stick to it. If you aren’t sure that you’ll stick to your plan, consider enlisting support – someone to hold you accountable. Whether it’s a family member, friend, or your financial advisor, let someone know of your plan. Set reminders on your phone or calendar and always check up on yourself. Look at your progress as you go to keep yourself motivated. Seeing your mortgage balance decrease will help keep you on track.
So should you pay for a mortgage acceleration program? The truth is that it’s probably not worth it. These companies are doing what you can absolutely do on your own. If you wonder about the financial effects of your extra payments or want help figuring out the best way to pay your loan off the fastest, talk with your financial advisor. He/she can help you figure out the plan that is most affordable and most effective without forcing you to pay a monthly and annual fee for a mortgage acceleration program that you could set up on your own.