Accelerating the Payment's a Good Thing!

Paying someone to do it for you? Not so good.

So are these equity accelerator programs worth the cost that it takes to set them up? These programs advertize that you can save big bucks in interest and shave years off of your equity loan by using their service. So is the marketing true?

If you run the numbers, the claims are true. However, with most of these programs, there are fees for services. So, the idea is great. However, it might not make sense to pay someone to do it for you. I saw a good example of such a program today that I wanted to share with you. With this program, there is an initial cost of $295 to set it up and then they charge a $5.42 service charge each month.

Basically, they are turning your loan into a bi-weekly payment plan which would ensure that you make one extra payment a year. If you are making 13 payments versus 12 payments, you will definitely pay it off earlier.

However, is this worth the cost? I had a chance to review one of these programs today and these are the numbers.

Option 1 Pay the loan out over 30 years making the monthly required payment

Monthly Payments $416.13
Total interest paid $88,805.91

Option 2 Use the equity accelerator program

Interest Saved by using their program $23,403.82
Up-front cost of $295.00 and a monthly service fee of $5.42
Make payments of $208.06 every two weeks – This will turn your 12 payments each year into 13 payments

Option 3 Do it yourself and don’t waste your money on fees

Strategy – Take a monthly payment of $416.13 and divide it by 12. That comes to $34.67. Now add that to your monthly payment of $416.13. You new monthly payment would be $450.80. Now instead of paying them $5.42 a month, pay that $5.42 a month towards your loan. Now your payment would be $456.22.

Result? This results in a savings of $24,886.39.00!! By doing it on your own and not paying this company fees, you save an additional $1,482.57 as well as not pay the up-front fee.

The moral of the story – Marketing claims that are bold and outrageous should be looked upon with skepticism. It is amazing to me that companies will market programs and charge fees for simple steps that you as a consumer can do yourself. Rule #1 should always be “Don’t buy into the marketing without seeing if you can do it for free yourself.”

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.