An equity accelerator program is where your mortgage company automatically debits your mortagage payment on a biweekly basis. In essence, instead of paying your mortgage on the due date every month, the payment is halved and paid every other week. You end up making 13 monthly payments by timing the mortgage payments biweekly. These programs help to reduce mortgage debt by making an extra monthly payment every year.
By making an additional payment every year, equity accelerator programs boast the benefit of reducing your mortgage substantially. For example, a $100,000 mortgage with a 6 percent interest rate could take 22 years instead of 30 years this way, saving you $34,000 in interest.
Paying an extra payment every year is indeed an effective way to reduce the mortgage overall. But equity accelerator programs are not always the best way to do this. Some mortgage companies charge hefty fees for these programs, wiping out much of the benefit of the extra payment. Some charge an enrollment fee of $200 or more, plus a monthly handling fee. In all, you’ll still come out on top, but there’s no reason to pay a fee for something you can do yourself.
Doing It Yourslf
The two benefits to signing up for an equity accelerator program are that they automate the timing and the debiting of the payment. You can do both on your own by using your bank’s online bill payment service to automatically pay your mortgage company every two weeks. This way, you’ll still make 13 payments without paying a fee to do it.
To determine how much to pay every other week, simply divide your current monthly payment by two. Make this payment on the same weekday every other week. For if your employer pays you biweekly, it is easy to remember to make your mortgage payment on payday.
When asked, some mortgage companies say they don’t accept biweekly payments from customers not enrolled in their equity accelerator program, even if there’s no prepayment penalty on a mortgage. If your lender tells you this, you can simply divide up the 13th payment you would have made on a biweekly program by 12 and add that amount to each of your monthly payments. You’ll receive the same benefit without paying the fees for an equity accelerator program.
Sara Huter is a professor of economics. Her background also includes risk management in the banking and energy industries with expertise in credit scores. Huter received an M.B.A. in finance from Texas A&M University and a B.S. in information systems from Kansas State University. She has been writing for over five years with work at Popsyndicate.com, WickedWordSmith.com and Simplejoy.com.