The vast majority of these programs are marketed as "helping" the consumers, but are in fact huge money makers for the companies that offer them with almost no risk.
1. They generally charge an initial or set up fee in the ~$100-$400 dollar range to pay for the account to be opened and maintained;
2. Some charge a small fee with each payment you make to them, or payment they make to your loan servicer. $5-$25 each to pay for the processing costs;
3(a). Most mortgage companies will ONLY accept 1 monthly payment to cut down on processing costs. These middle man companies (and many times the banks themselves when they offer the service), do not apply the excess payment to your account. Your excess money sits in a holding account until you have enough for the full extra payment. They generally wait until the end of the year to make a "double" payment with all of the money they have collected from you;
3(b). In the interim, the service provider is making interest money off of your investment.
Mathematically, it's ALWAYS better to make the extra principal payments yourself as part of your monthly payments, whether its when you have the extra paycheck that month, or just an average of an extra payment (1/12 additional each month) each year.
These services are geared towards the people who 1) are lured by the marketing and don't read the fine print, or 2) can't prevent themselves from spending every penny in their account and need someone to manage their extra payment.
Rick
