EagleTribune.com, North Andover, MA

Business

November 30, 2013

Don't pay to speed up mortgage

Should I pay a nominal fee to be enrolled in a mortgage accelerator program?

No, you should not. Mortgage accelerator programs are similar to the biweekly mortgage deals floating around out there. Paying on your mortgage biweekly is fine. Paying for the privilege is not.

In the biweekly mortgage program, you make a half-payment every two weeks. By doing this you will pay off the typical 30-year note in about 22 years. It works because there are 26 two-week periods in a year, and 26 half-payments equals 13 whole payments. It pays off your mortgage early because you’re making an extra payment every year. That’s what’s doing it. There’s nothing magical about every two weeks; it’s the fact that you’re paying extra principal.

Instead of paying your mortgage company an unnecessary “nominal fee,” just make an extra payment each year. Or, pay one-twelfth of a payment as a principal reduction with a separate check, in a separate envelope, every month. By doing that, you’ll pay off the loan just as quickly as with a biweekly arrangement.

If you’re just now taking out a mortgage and your lender can do a biweekly setup at no cost, then that’s great. Take them up on the offer. But we’re not going to pay them an additional fee so you can make extra payments on the principal. That’s just stupid!

My husband and I tithe, but right now we’re on Baby Step 2 of your plan, and we’re expecting a child in a few months. Since we’re trying to pay off all our debt except for our home, what should we do about giving beyond our tithe in this situation?

Evangelical Christians recognize two types of giving in the Bible — tithes and offerings. The tithe is off the top, before you do anything else. That’s why I recommend people put it on the top line of their budget forms.

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