Newspaper article THE JOURNAL RECORD

Alternative to Refinancing?

Newspaper article THE JOURNAL RECORD

Alternative to Refinancing?

Article excerpt

NEW YORK -- There are at least a couple ways some homeowners can cut mortgage costs:

They can sign up for a mortgage acceleration program, where payments are electronically deducted from their bank accounts biweekly. One extra payment is essentially made each year, thereby slashing interest costs by shortening the life of the loan.

Or, they can add a little something extra to their regular monthly payments on their own. Both accomplish long-term savings, only most biweekly plans offered to existing homeowners charge anywhere from $200 to $600 in start-up costs, along with small monthly administrative fees. Critics say that's a waste of money, plus borrowers are locked into a stricter payment schedule. But plan administrators maintain most people lack the discipline to make extra payments on their own, and whatever fee is charged, is a small price for something that ultimately could save loads of money. Lenders have been pushing the prepayment strategy lately, and a growing number of third-party collection companies have been springing up to cash in on this hot home loan product. Some lenders have even promoted biweekly mortgages as a less- expensive alternative to refinancing. "If you're sitting on a 7.25 percent loan and the current rate is 6.75 percent, it's probably not worth refinancing for only half a percentage point," said Keith Gumbinger, a vice president of HSH Associates, a Butler, N.J.-based mortgage research firm (www.hsh.com). "Lenders promote the biweekly package as something that can shorten the term of the loan and save money... and all it costs is a one-time start-up fee." Instead of making the usual 12 monthly payments per year, borrowers make 26 twice-monthly payments, each of which is half the size of the regular monthly payments. That adds up to 13 full payments a year. The savings can be considerable for 30-year mortgages, as Gumbinger noted here: On a $100,000 30-year loan at 7 3/8 percent, the monthly payment is $690. …

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