Equity Acceleration Programs: Not needed to pay off your mortgage sooner

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From time to time, when I get my mortgage statement in the mail, attached is a pamphlet encouraging me to enroll in the Equity Accelerator Program.  It is a service provided by the bank that automatically drafts half of your mortgage payment out of your bank account every two weeks and will help cut down the length of your mortgage.  In theory it sounds good, but is it really worth it?

How it works is very simple.  Every two weeks half a mortgage payment is withdrawn from your account.  So that means that 26 half payments are withdrawn each year.  Those 26 half payments equal 13 full payments, so you are paying the equivalent of an extra payment over a full year.  Over the length of a 30 year mortgage making one additional payment per year will reduce the mortgage anywhere between four and six years and save several thousands of dollars in interest.

While that does sounds nice there are some drawbacks, being mostly the fees associated with the service.  The program offered by my mortgage holder costs $9 a month to use plus a $49 start up fee.  The estimate provided to me by my mortgage holder is that it would take 12 years 9 months to finish paying off the balance if using their program, which would cost $1,426 ($49+$9 times 153 months) in fees.  The good news is that you can pay extra on your mortgage yourself without any fees!  Simply just make an extra mortgage payment a year on your own and the pay down time will be just the same as if you used the bank—less paying them to do it for you.

So while this is a nice service provided by the bank that will get you out of debt faster, the service is simply not worth it to me.  The fees are high for something you can do by yourself.  The $49 start up fee is a lot lower then it used to be though as previous offers included a $400-$500 start up fee!  But by simply being disciplined in creating and sticking to a budget you can pay down your mortgage faster by yourself.  I have a created a mortgage amortization spreadsheet that will track how soon your mortgage will be paid off if you make additional payments at any point in time in your mortgage.  My wife and I are using our own accelerated mortgage plan and are scheduled to have our mortgage paid off in just over 3 years!  Bottom line is that you do not have to pay the bank extra to pay down your mortgage, just do it yourself!

Mortgage Amortization schedule

As I promised in the Standard Deduction post, here is another spreadsheet.  This one is a mortgage amortization schedule spreadsheet.  Ever wonder how much sooner your mortgage would get paid off if you paid $50.00 a month extra?  Or how about a $2,000 one time extra payment because of a big tax refund?  You will be able to find out by inputting just numbers into four different cells.

Mortgage Amortization Schedule

1.)    Current Loan balance-In cell F1 input your current loan balance.  Note that this is your current balance not the original amount you paid for the house but rather how much is owed currently.

2.)    Payment-In cell F2 enter your principal and interest payment per month.  This does not include any taxes or insurance that is included in your payment just the principal and interest.

3.)    Interest rate-In cell F3 enter your interest rate.

4.)    Current month-Enter the number of the current month (IE January=1, February=2, March=3, etc).  For example since the current month is March, I would enter the number “3” in the spreadsheet.

5.)    Extra Principal-Enter any extra principal payments made in the month in the “Extra Principal” row for the month(s) that you made the extra payment.

Also remember that this spreadsheet will only work for those who have a fixed rate mortgage.  I hope those of you who are trying to pay off their mortgage early will find this spreadsheet helpful.  Feel free to comment if you have any questions or suggestions and please let me know if you find this helpful.