So last week I went online to make my first payment on my newly refinanced mortgage. After completing the payment, I got an offer from GMAC Mortgage that read:

You can save $xx,547.00 in interest and pay off your loan 69 months sooner without refinancing and with no upfront fees. Click here for information or to enroll now. |

The product is called a |

I filled out the information and was just about to click OK, when I decided to read the FAQs. There was a one-time fee of $250 charged to me as part of the first two week payment and a $5 charge taken out of each payment! The original paragraph certainly seemed like deceptive advertizing.

But, now I decided to do a little math, before completing the transaction. There is a wonderful free mortgage calculator available on the office.microsoft.com web site. (Search for mortgage calculator) Vertex 42 makes the calculator and it is one of the slickest spreadsheets I have seen. (I know, because I used to write these types of calculators for Fleet Bank)

The calculator allows you to play all kinds of what-if questions.

Here are the questions I posed:

1. Calculate a 30 year fixed $100,000 5% mortgage with monthly payments. (See figure 1)

**Results are: **

Total Payments: $193,256.32

@25% Tax bracket saved taxes: $23,314

Payments completed after: 30.00 years.

2. Calculate a Bi-Weekly Accelerated Mortgage. Note that I am neglecting the bank fees. (See figure 2)

**Results are **

Total Payments: $175,894.30

@25% Tax bracket saved taxes: $18,974.00

Payments completed after: 25.23 years.

3. Calculate a 30 year fixed mortgage with monthly payments, but add a single month payment at the anniversary date of the mortgage. This should cost approximately the same as option 2, except there are no bank fees. (See figure 3)

**Results are **

Total Payments: $176,907.27

@25% Tax bracket saved taxes: $19,227

Payments completed after: 25.42 years.

4. Calculate a 30 year fixed mortgage. Instead of adding one extra monthly payment on the anniversary date, split the payment into 12 equal pieces and add that to each monthly payment. (See figure 4)

**Results are **

Total Payments: $176,289.56

@25% Tax bracket saved taxes: $19,072

Payments completed after: 25.33 years.

F**igure 1: 30 year fixed $100,000 5% mortgage with monthly payments.**

**Figure 2: Calculate a Bi-Weekly Accelerated Mortgage. Note that we are neglecting the bank fees.**

**Figure 3: With monthly payments, but add a single month payment at the anniversary date of the mortgage.**

**Figure 4: Instead of adding one extra monthly payment on the anniversary date, split the payment into 12 equal pieces and add that to each monthly payment. **

Note that the extra payments I would make to GMAC Mortgage would be $250 + $5* 12 * 25.23 = $1763.8. This is not tax deductible money. Thus I am best off using option 4. So I decided not to proceed, and opted to go with my option 4.