Forget the Mortgage Accelerator Plans
Doug on Twitter wants to know what Dave thinks of mortgage accelerator plans. Dave explains.
QUESTION: Doug on Twitter wants to know what Dave thinks of mortgage accelerator plans. Dave explains.
ANSWER: There are basically two kinds of mortgage accelerator plans out there floating around. There’s the old biweekly mortgage. “Mortgage accelerator” means we accelerate how fast we pay off the mortgage.
A biweekly plan is where you pay half of a payment every two weeks. That will take a 30-year mortgage at 6% and pay it off in about 22 years, give or take. They sell this for $400 or $500 or $600 and $14 a month or whatever to service the program. I would not pay someone to do a biweekly mortgage. It’s ridiculous, because biweekly mortgages are not magic. When you pay a half a payment every two weeks, keep in mind that there are 26 two-week periods in a year. You’re paying 26 half payments. Twenty-six halves equal 13 wholes. You’re paying an extra payment each year. That’s why your mortgage pays off eight years early.
The other kind of mortgage accelerator program floating around out there is a total rip-off. That’s these new programs where they’re trying to sell you a piece of $3,500 software tied in with a home equity line of credit. They’re called money merge accounts. That’s where you pay all of your bills out of your home equity line of credit and you have your paycheck deposited against your home equity line of credit, and whatever is left they pay down on your mortgage and it will pay off your mortgage “magically” very fast. The problem is that no matter how many times you move the shell, the pea is still under there.
Whether you use a home equity line of credit or whether you use a yellow pad for a budget, in either case, if you want to pay extra payments on your first mortgage, you have to live on less than you make. If you borrow money on the home equity line of credit to pay money down on the first, you broke even, didn’t you? That’s borrowing from Peter to pay Paul. That’s stupid. What they’re saying is that they’re going to assist you in managing your money better, and they’re going to charge you $3,500 for all this gyration. It’s a bunch of crap.