Want to pay off your mortgage faster? Who wouldn’t?
That’s the appeal of the “term reducer” pitch that arrives in your mailbox. Mine – signed in cursive by a nice girl named Kate from Ohio – said I could cut over 12 years and $230,000 off of my mortgage (which seemed pretty amazing since I just refinanced my mortgage to a 15-year term, meaning I’d be paid off in a miraculous 3 years).
Unfortunately, like many other financial offers that sound too good to be true, this one is exactly that. Too good to be true. For 75% of the people who fall for this scam, it actually ends up costing them more money than it ever saves.
So when you get pitched the infamous biweekly “mortgage accelerator,” or “term reducer,” or another program that promises to save you interest and pay off your mortgage faster, read this first:
Read the fine print. After promising to cut 12 years off of my 15-year mortgage, the fine print backtracked and said these are “sample” figures only and have nothing to do with my situation. But many people are swayed by the big, bold savings promises and never make it to the fine print.
You can obtain the same savings for free. Want to pay off your mortgage faster? Talk to your mortgage lender about sending in an extra payment once per year, or pay extra principal every month. You’ll save, and it doesn’t cost any extra in fees.
These guys just sit on your money. You may send in extra money to these scammers, or submit payments more frequently (and pay a fee for doing so), but they just sit on your money. Here’s again what the fine print on my letter says (note the portion in bold): “This automated process results in 26 biweekly debits annually, which equals 13 monthly payments. As required by the lender debits are remitted to them once monthly.” That means even when you pay them twice per month, they wait until month-end to send any of it in. And you pay money for that?
Disregard the officialese. The letter I received gave me a deadline to call the company, and warned me in bold, underlined letters that if I declined their services, I would “be asked to confirm that I understand that I am voluntarily giving up interest savings and loan term reduction.” Sounds scary? It’s total hooey.
Pay attention to who these letters are from. Short answer: no one of importance. They’re not from your lender, or anyone you’ve chosen to do business with. These people scour the official records to discover whether you’ve just bought a house or refinanced a mortgage (like I did). Then, they start spamming you. Throw it out. In fact, the fine print on the solicitation I received says way down at the bottom that they “are not affiliated, connected or associated with, sponsored or approved by the lender. Information concerning your loan was obtained from public record.”
Fees and more fees. These programs cost you money. Typical fees include a setup fee of up to $995 to enroll in the program and between $84 and $101 in payment processing fees each year you remain enrolled. In fact, the government’s Consumer Financial Protection Bureau (CFPB) just filed a lawsuit against these guys claiming consumers have lost over $49 million through their misleading promises and programs. The CFPB pointed out that 75% of biweekly customers left the company’s program within 4 years of paying their $995 set up fee, plus the yearly fee, for an average lost of $1200.
This is why they invented Google. A little free research goes a long way. If you Google the company who sent me a letter, or others like them, you’ll see dozens of complaints. And you’ll also run across details of the multi-million dollar government lawsuit against these firms for predatory and misleading practices.
The Takeaway: Not to burst your bubble, but the financial industry is full of misleading and unscrupulous bottom feeders, so a healthy dose of skepticism is definitely in order. Better yet, run offers like this past your financial advisor before you bite. We get frequent calls from clients asking our opinion on all kinds of consumer offers, online investment newsletters, and other financial paraphernalia, so don’t be afraid to speak up. A little caution and due diligence can save you money.