We live in interesting times. The economy is in a recession caused in large part by falling real estate prices, record foreclosures and adjusting mortgage payments. Homeowners haven’t been this pressured about potentially losing their homes since the Great Depression. And just like back then, more & more homeowners are becoming enamored with the idea of paying off their mortgages, so they don’t have to worry about losing their homes. Where there’s enough demand, someone will come up with a supply. So, several companies have sprung up with products & services to help homeowners pay off their mortgages early. Of course, these products & services come with a fee. The question is, what are you paying for?
The Bi-weekly Mortgage Payment Program. It’s been around for years and if you’ve had a mortgage for any length of time, your lender has probably sent you an offer to sign up for the program. The typical solicitation shows how by paying ½ your current mortgage payment every two weeks, you’ll save thousands, if not tens of thousands of dollars and pay off an average 30 year mortgage in only 23 years. The charge for this program is usually a $350 set up fee and a $1-$2 payment processing fee.
How does the program work? The calendar year has 52 weeks in it. If you break your monthly mortgage payment in half and pay it every 2 weeks, you’ll end up paying 26 half-payments (52 weeks divided by a payment every 2 weeks). If you divide 26 half-payments by 2, you come up with 13 whole payments. So, the program really pays of a mortgage early by making an extra payment every year.
The Money Merge Account Program. There are several offerings of this type where you open a special line of credit, called a money merge account, against your home. The account allows you to deposit your paychecks directly into it and comes with a checkbook and often a debit card. The typical solicitation claims an average 30 year mortgage can often be paid off in as little as 10 years. You’re required to open a money merge account using your home as collateral. You are then told to deposit all your income into the account and to pay all your bills by writing checks from the money merge account instead of your normal checking account. Then a computer program is used to determine when to borrow funds from the money merge account to pay down the first mortgage. Over time, you pay down the money merge account and the computer program tells you when to repeat the process. The charge for this program can be as high as $3500. Most of the companies require you to have at least $10,000 in equity in your home to be eligible. One company has also turned their service into a multi-level marketing offering.
How does this program work? There’s no magic. The spreadsheets & graphs analyzed showed that the majority, if not all, of the savings comes from the homeowner applying their discretionary income to pay down the money merge account. So, instead of putting part of your income in a savings account, you’re using it to pay down your mortgage balance. For the program to work, you must make more than you spend.
BOTTOM LINE: Don’t fall for any of the hype! There are con artists pushing these programs as “magical” solutions that create money out of thin air. These con artists aren’t just going after homeowners. They’re paying professionals you trust – Realtors, loan officers, financial & insurance professionals, even attorneys, & fooling them into selling these programs to you.
There are no special tricks or magic to any of these programs. Homeowners should understand that there is no way to make your mortgage just disappear. Financial discipline is required to pay down your mortgage. Both of the programs outlined above charge a homeowner for something that can be done entirely on their own. If you have a good handle on your finances, these programs are probably a waste of your money. On the other hand, if you’re a spendthrift & have a difficult time saving money, these programs may help you find the discipline to accomplish your financial goals.
It is highly recommended that you speak with a Certified Mortgage Planner, or at least a certified financial expert of some sort, before spending money on one of these programs. Otherwise, you may be doing more harm than good.
