Wells Fargo's mortgage reduction program? Save more money doing it yourself.
Written: Feb 25 '03 (Updated Aug 06 '04)
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Pros: If you lack financial discipline, Wells Fargo's mortgage reduction program may save you money.
Cons: But, you'll pay thousands of dollars in fees for something you could do yourself.
The Bottom Line: Wells Fargo offers "mortgage reduction programs" that promise to save you lots of money, and they do. But you can save thousands more by doing it yourself.
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| jsquarejj's Full Review: Wells Fargo |
This review is about one of the products of Wells Fargo Home Mortgage, one of many companies with the same parent corporation as Wells Fargo Bank. Approximately two and one-half years ago, Norwest Mortgage became Wells Fargo Home Mortgage. Unfortunately, you'll still find Norwest Mortgage in ePinions' list of mortgage providers, and despite repeated attempts to inform ePinions of the problem, you won't find Wells Fargo Home Mortgage. Since this company is one of the country's largest mortgage providers, I feel it is appropriate to go a bit "out of category" just so people will be able to find this information when they do a search on "Wells Fargo."
Note: This review is not a critique of Wells Fargo Bank nor a critique of Wells Fargo Home Mortgage's mortgage lending business. I have had two mortgages with Wells Fargo Home Mortgage (obtained through mortgage brokers), and I have no complaints about their mortgage business, per se.
That said, here's the review:
"Sign the Equity Enhancement Program coupon on your [mortgage] statement and save $25 on your current mortgage payment. The Wells Fargo Equity Enhancement Program provides an accelerated payment plan that is convenient and easy on your budget."
That's the come on I received from my mortgage lender, Wells Fargo Home Mortgage. If you've read my other opinions in the mortgage section, you know I'm against signing up for these so called "mortgage reduction" or "equity enhancement" programs, and I'd like to use this specific real world example to show you why.
--- Our Mortgage ---
We got our current mortgage on April 1, 1998. It's a fixed rate, 30-year loan with a monthly payment of $1,842.89.
--- Wells Fargo Sends Us a Proposal ---
Wells Fargo sent us a letter proposing the following program: We divide our normal monthly payment in half and have them automatically debit it from our checking account every two weeks. By doing this over the course of a year, we more or less accrue an extra monthly payment, all of which goes toward reducing principal. The two benefits are 1) the loan will be paid off 4 years and 9 months early, and 2) we will save $65,749.56 in interest.
That sounds like a really good deal, but here's the fine print:
1) If we sign up, Wells Fargo will cut $25 off our current monthly payment. Hey, that's good, too!
2) They will charge us a one-time program set up fee of $295. Seems like a lot for something that already seems to be in their computer, judging by the details in the proposal letter.
3) They will charge a $5.42 monthly "participation fee." That doesn't seem like much, but it adds up to about $1,442 over the remaining life of the loan. It also sounds like a lot for simply making a few electronic funds transfers. After all, the corner gas station charges only 25 cents when I pay for gas with my ATM card.
--- What If We Do It Ourselves? ---
My my real question was, "couldn't we do essentially the same thing ourselves with no extra cost or involvement from Wells Fargo?" And the answer is, "of course!" We can't really make loan payments every two weeks because the loan requires a monthly payment, but we can increase our monthly payment by one twelfth of the normal amount or $154. That would add $1,848 to our annual payments, $40 less less than the additional $1,888 required by the Wells Fargo program.
But the additional savings of doing it ourselves are what convinced me not to buy this program. Doing it ourselves in the way I described would cut an additional 5 months off the life of the mortgage and save us an additional $5,500 in mortgage interest above and beyond what the Wells Fargo program promises. This analysis doesn't even consider the $295 set up fee.
--- What You're Really Paying For ---
Given that you can do it yourself and save even more, why would anyone sign up for this program? The answer is that a lot of people don't have the financial discipline to pay an additional amount on their mortgage month after month and year after year. After all, you can spend the money on something else. What you're getting for nearly $2,000 in fees is just someone to hold your hand and make it easy to do something you would have difficulty doing without the extra persuasion. Do you really need that?
-- Related Links --
For a more general look at mortgage reduction programs, check out my ePinion Mortgage Reduction Programs--Worth the Price?
Recommended:
No
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jsquarejj
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Member: Jim J
Location: Santa Cruz, California
Reviews written: 190
Trusted by: 78 members
About Me:
#7 in Personal Finance, #14 in Travel. My goal? Saving you money.
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