I received one in my personal mail today and decided to write an article to post on our web site about the scam aspects of the proposal.

An equity accelerator program is being offered to homeowners under the guise of being in the customer’s favor. For customers paying a monthly payment by mail, they propose to switch to a biweekly payment via an electronic debit to your bank account. The letters indicate a number of rewards, some of which may be valid, but none of which are really in your best interest. They tout simplified budgeting, interest savings, reduced pay off duration, and faster equity accrual.

The truth is the real benefits are to the lender and this program does not maximize the borrower benefits.

The lender benefits by being able to automate the payment eliminating their processing cost, and at the same time they add as much as 1.5% of the payment amount for every payment that is debited from your checking account. That’s right, they reduce their costs and you pay a 1.5% premium to them for doing this. The lender also benefits because they entice you to make an extra payment each year continuing to pay interest on money that could be used for paying additional principal. The process of paying additional principal can be done at anytime, eliminates interest forever, and is the process is free to the borrower.

By accepting the equity accelerator program, the borrower will not maximize the full value of the money that is being applied to the extra payment because a portion of it will go to pay interest. Certainly the borrower will obtain no value for paying a 1.5% fee to have a biweekly debit made electronically to their checking account. Based on the way many people maintain their bank balances, this could in fact result in insufficient fund fees and chaos in the checkbook.

Better stewardship would be to add one twelfth of the monthly payment in additional principal each month to your regular monthly payment, which will really accelerate your payoff and equity accrual, and won’t profit the lender a penny. If you have the money to add the 1.5% fee the lender wants to charge you then add it as well as additional principal, and you will be an even better steward.

All that glitters is not gold. If a lending institution sends you an unsolicited proposal, that should be a red flag that there is a hook in there somewhere.