US Bank Accelerator

August 8, 2005 5:34 PM

Is the US Bank "Equity Accelerator" program really as good as it sounds? Are there any downsides or risks that I should be aware of while considering this program that claims to pay off my mortgage 7 years early?

The program would split my monthly payment in two (2 payments a month) and would end up costing about $4 more per month. I will have to pay with an automatic withdraw from my bank account. They claim that I will save $30,000 in interest payments and have my mortgage payed off over 6 years earlier.

So what's the rub- what pitfalls and downsides should I be looking for? Also, how are they making money of this deal?

posted by gus to home & garden (11 comments total)

You really need to fill in some details here. If your monthly payment is simply split in two, why does it end up costing $4 more per month?

Are you sure it isn't a biweekly payment plan, where you pay 1/2 your monthly bill every two weeks? In that situation you end up with, effectively, an extra monthly payment every year. This will let you pay off the mortgage early, but it isn't anything you couldn't do yourself for free, anytime you wanted to.
posted by xil at 5:51 PM on August 8, 2005

Since you're making 26 half-payments a year (13 full payments) instead of 12 full payments, you are putting an additional payment each year straight toward the principal.

Paying directly by automatic withdrawl lessens the risk to the bank.

If you want to duplicate this effect without locking yourself in to this program, you can pay one extra payment a year, or a little extra every month. You shoudn't have to sign up for a special program to do this.
posted by Coffeemate at 5:51 PM on August 8, 2005

On post-view, what xil said.
posted by Coffeemate at 5:52 PM on August 8, 2005

Also, there's a lot of good info about this issue on the Mortgage Professor's site.
posted by xil at 5:53 PM on August 8, 2005

Good question gus - good for you for asking instead of blindly signing up as many do.

Many banks, lenders, and mortgage brokers have these sort of programs now. Each one is different - you'll need to read the fine print. Here's what to look for, good and bad:

Good:

Payments are immediately applied, in full, to your principal first, then any remainder to your interest. (The faster you pay down your principal, the less interest is charged at each recomputation - biweekly, monthly, yearly.)

There is no monthly fee for this program. At least one bank that I know of does this. (If you would really like me to name them, ask - otherwise, I don't necessarily want to give them a plug.)

There is no initial enrollment fee - same story as the monthly - at least one (that I know of) does not have this fee.

Bad:

Payments are applied first to interest, then to principal. This way, very little principal gets paid down each time, leaving more for interest to be computed on next time (this = more money for the bank.)

Payments are still applied as before, the same amount per month, or half every two weeks, and any extra is held (making more money for the bank) until the end of the year, then applied, maybe to interest, maybe to principal. True biweekly payments means 26 a year, not 24 - this will change your payment amount, and also means you effectively have (roughly) one extra month's payment in there. Don't let them hold it until the end of the year - make them apply it (directly to principal) as they get it.

Obviously, as mentioned before monthly fees and enrollment fees. These can range from a couple hundred to several hundred dollars.


Other things to look for:

No PMI. Private Mortgage Insurance has you giving the bank a little extra in each payment, then they pay your taxes and/or homeowner's insurance each year. Again, the bank is making money off your money all year long, and often charging you for the privilege as well. Open a money market account, save up for these two yearly payments yourself, and hopefully even draw enough interest in the meantime to at least match inflation (3%-4% a year).

The ability to make extra payments, at any time, with no fees, and have them go directly to principal. You may also want to try to avoid a "no pre-payment" clause which would charge 2%-3% or more if you paid the mortgage in full within just a few years, rather than close to or on the original schedule. This may be hard to avoid, though, and is probably ok unless you're planning on winning the lottery.
posted by attercoppe at 5:55 PM on August 8, 2005

And of course as I typed that long answer, a few people beat me to it. And put it more succintly. But I hope I helped.
posted by attercoppe at 5:57 PM on August 8, 2005

gus, the "seven years early" number you cite is appropriate for biweekly payment plans, plans in which you pay a half payment every two weeks but not for making two half payments a month. Two half payments a month wouldn't accelerate anything.

That being said: if you can afford it, mortgage acceleration plans are great. But be sure you can afford it.

My wife and I participated in such a plan on our first house, and it meant we added a ton of equity so that when it came time to sell, we got more out of the house. (We were in the house for a decade, so the money added up.)

There really are no downsides to biweekly plans other than the fact you're making an extra payment every year. If you can afford it, do it.
posted by jdroth at 6:37 PM on August 8, 2005

Two half payments a month wouldn't accelerate anything.

Actually it knocks a tiny bit off, see the Mortgage Professor's site xil linked to for an example.

I'd definitely set up a spreadsheet with the loan particulars, then you can try different scenarios, but in general the earlier you pay and the more you pay, the less interest you'll pay and the faster you'll pay off the loan (*if* you can afford it, obviously don't do things like taking on high interest credit card debt in order to pay off the loan early).
posted by blm at 7:05 PM on August 8, 2005

AskMefi is great! I knew I was missing something- that it's biweekly payments and not twice a month. So in essence I'm making 13 months worth of payments a year.

According to this page it makes more sense just to keep paying extra each month, like I am already doing. I'm going to sit down and do the amortization table tonight and see.

Also, what aftercoppe said about pmi insurance makes a lot of sense too. Thanks for all of the great input.
posted by gus at 7:15 PM on August 8, 2005

Yes, it's good. We used it. Worked just like they said. Just make sure everything is properly signed up. We tried doing this without the third party after doing it with equity accelerator. The mortgage bank eventually started refusing partial payments and our mortgage got all messed up for a while. But through Equity Accelerator everything worked smoothly.
posted by Doohickie at 7:43 PM on August 8, 2005

AskMefi is great! I knew I was missing something- that it's biweekly payments and not twice a month. So in essence I'm making 13 months worth of payments a year.

Yeah, and it goes toward your principle, so that's a good thing. The Equity Accelerator people don't keep it.
posted by Doohickie at 7:44 PM on August 8, 2005