I was recently asked about a mortgage acceleration program and how they work. The idea behind the program is to pay off your home 2 or 3 years early, and save a bunch of money on interest. But what are they exactly, and do they really work?
Most mortgage acceleration programs use the same basic principle. If you stick to it, you will actually pay off a 30-year fixed-rate mortgage in about 27 years, and as a result, you will save a few thousand dollars in interest payments.
As to how they work, the idea is very simple. For a fee, the companies will usually break your mortgage payment in half and have you pay it every two weeks, rather than one full payment every month. This tends to work out good for those of us that get paid every two weeks or every week. While making half payments every two weeks, the program actually forces you to make one extra full payment every year, thereby paying off your home early.
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The process is simple, but is there a better way? Yes, there is.
Most of these programs charge a fee to set it up with your bank, and then another fee each time you make a payment. While you will come out ahead in the end (most of the time), you really can do this on your own without paying someone else.
If you want to make an extra payment each year, there are a few different ways to do it. If your mortgage payment is $1,200 per month for instance, divide it by 12 to get $100. That is how much extra you need to pay each month to equal an extra payment.
If you have paid weekly or bi-weekly, you can also take a portion of your extra two paychecks (26 paychecks at bi-weekly instead of 24), and apply that to your mortgage payment that month. By doing it on your own, you will save yourself the fees and keep the ball in your court. Of course, the good thing about any program is that once you are on it, you receive a bill every two weeks, and you are held liable to pay it on-time. Can you trust that you will have the will-power to do it on your own without a bill telling you to?
As with anything financial, always make sure that you do things in the proper order. To view the seven Financial Freedom Steps, visit www.lukascoaching.com/resources.htm and download it for free.
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