The American dream has always been to own your home. We should all be grateful that we live in a country where this is even possible. Of course, this comes with 30 years of payments, and being in debt. Most people are simply unaware of the true cost of their home mortgage.
For example, let’s assume a $200,000 mortgage at 6.75% interest rate, with a monthly payment of $1297.20 (plus taxes, escrows, and impounds). After 30 years of paying the bank or finance company, you will have paid a total of over $466,992! This represents the original loan amount of $200,000, plus over $266,992 in interest! That’s an expensive home!
To make matters worse, you are left owning a 30-year old home! On top of all this, several government agencies have recently reported many lender overcharges. In fact, there is up to a 70% chance that your lender has overcharged YOU! This is even more true if any of the following conditions apply: you have an ARM, the loan has been sold or transferred to another lender (a common occurrence today), your balance has not been decreasing as you expected, or you have made pre-payments on your own. It is a fact that banks such as GMAC, Fleet, Citibank and others have been ordered to pay back hundreds of millions of dollars in lender overcharges!
Why do lender overcharges occur? There are a number of reasons. It could be as simple as improper data entry—after all there is some clerk in South Dakota punching info about your loan into a computer. Do you think she/he is concerned about making sure your data is entered correctly…or about getting out of work 5 minutes early? Or an incorrect index could be used. Or an incorrect monthly payment factor, incorrect rounding, or even just general math errors.
What can you do to ensure that you have not been overcharged? You could go to an accountant and hire them to perform a mortgage audit on your loan. Even though the average cost of such an analysis is around $400 it is probably money well spent.
But could there be a better way? What about converting your monthly mortgage into a bi-weekly mortgage? The process is basically simple—instead of making one large monthly payment, you make a payment equal to half of your normal monthly payment every 2 weeks. This has the effect of accumulating an extra mortgage payment each year (there are 52 weeks in a year, and 26 2-week periods, which is equivalent to 13 4-week periods). This extra money is directed to be applied to the outstanding principal balance, thus reducing the loan interest substantially. In the above example, if you were to pay your mortgage on a bi-weekly basis, it would save you over $61,151 in interest alone, plus your loan would be paid off almost 6 years earlier (5 years and 10 months to be exact)! If you were to carry this a bit further and pay an extra $25 every 2 weeks, you would save over $81,209 in interest and have your loan retired exactly 7 years and 10 months early!
You should be forewarned that many banks will not offer this service to you. They would much rather have you refinance…so that you could be charged all of those fees—credit check, appraisal, closing cost, etc… These fees could add to an extra $4,000!
You could set up such a plan on your own. However, if you do try to repay in this format (or in any other), at the very least find a good accountant and have an audit done every year. This will ensure that your prepayment money is being applied properly. Of course, you will pay about $400 for this safety. It has also been estimated that only 3% of the people who attempt to do this on their own will actually be successful at it.
Another option would be to use a service to set this up for you. A company such as USMR can do this for you. Your checking account will be automatically debited every 2 weeks. The money is held in a top-rated FDIC insured escrow account, and forwarded on to your mortgage company at the appropriate times. Specific instructions will be given for how to apply the pre-payment money. This will be followed up with yearly mortgage audits to ensure your money is being handled and applied properly—FREE!! That’s going to save you at least $400 a year.
Unlike re-financing there are no heavy fees involved in such a process. You would only pay a one-time enrollment fee, and then a small bi-weekly debit charge. For more information about this method, please follow the links below.
USA Gold Merchandise Credit Card
