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Are Mortgage Acceleration Plans a Good Deal?

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Consider these factors before you pre-pay.

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"You have nothing to lose and so much to gain -- $103,162!"

Like most recent homebuyers getting such pitches, I haven't been enticed to pay my mortgage down faster. The gist is that by switching from monthly to biweekly payments, I can save a bundle from cutting out years of interest payments.

Still, I'm having a hard time forgetting the offer that landed in my mailbox a couple months ago. After all, the projected savings could help put my two toddlers through college someday. And my family is staring at 29 years of payments on a two-family home in a pricey market.

My lender's pitch said I could wipe away the loan nearly six years faster with biweekly payments to a mortgage acceleration program. The only fee would be a monthly $9 service charge.

In a market where you can no longer count on rising home values to boost your equity, speeding up my mortgage offers a way to do it myself. Sure, I'd need discipline and lose some flexibility: Mortgage withdrawals on a biweekly basis add up to a modestly larger cumulative payment per year than a monthly schedule.

But is there more to the equation?

Q:
Who typically gets these offers?

A: Recent homebuyers, who often find the pace of paying down principal on their mortgage frustratingly slow early on. Depending on the loan's structure, 90 percent or more of initial payments can cover interest, rather than chipping away at the principal.

Q: How many people use mortgage acceleration programs?

A: Industry data are hard to come by. The Mortgage Bankers Association and consumer advocates lack any hard numbers.

The programs may look more appealing now because the housing market slump.

"Now, the onus is more on the homeowner to create their own equity by paying down their balance faster," said Greg McBride, senior financial analyst at Bankrate.com."

Q: Do all the programs operate like the one described above?

A: No. Most involve payments to a third-party through automatic bank account withdrawals each time you get a paycheck. Monthly service charges generally run $5 to $10 over the life of the mortgage; many also charge sign-up fees of $100 to $300.
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