A mortgage accelerator program is a mortgage loan program that is tied to your home equity line of credit (HELOC). The goal of the program is to help you pay off your mortgage faster and save tons of money.
Types of mortgage acceleration programs
Mortgage acceleration programs are of two types. There is the bi-weekly mortgage plan where you pay your mortgage after every two weeks. So basically, by doing so, you pay off your mortgage faster. The other one is a mortgage plan that is linked to your home equity line of credit.
Mortgage accelerator programs are quite popular in Australia, the United States, and the United Kingdom. In Australia alone, over a third of homeowners use mortgage accelerator programs.
These programs are ideal for people who don’t want to spend years paying off their mortgage. In any case, the sooner you are able to pay off your mortgage, the better as your home equity will start to increase sooner.
How it works
The mortgage accelerator program is linked to your home equity line of credit. Your paychecks go directly into that account and your mortgage balance is deducted from that amount. In this case, your HELOC account serves as your checking account.
For example, you purchase a home for $300,000 and you put down 20% or $60,000. You take out $30,000 HELOC, which goes towards paying your mortgage. So now your home equity is $60,000, your HELOC is $30,000 and your mortgage is $240,000.
Basically, when you transfer money from your HELOC account to your mortgage and then pay off your HELOC account, you will clear your mortgage debt faster.
Keep in mind that the more you save, the less interest you’ll pay at the end of loan period because your savings are going into paying off your HELOC.
Benefits of a mortgage accelerator program
HELOC programs offer a number of advantages. These include:
- Fast payment of your mortgage – when you deposit your paycheck into your HELOC account, your mortgage is deducted. By doing so, the principle balance of your mortgage is reduced. Since you make payments every 2 weeks, you’ll be able to clear your mortgage debt faster.
- Less interest – since you pay your mortgage off faster, the total interest you end up paying at the end of loan period is reasonably low.
- Build home equity faster – with mortgage accelerator programs, you are able to build your home equity much faster. This is because the programs allow you to pay off your mortgage within a shorter time than you would if you took a 30-year mortgage loan.
- No extra costs – mortgage accelerator programs allow you to pay your mortgage debt without increasing the mortgage payments.
- Better financial management – with mortgage accelerator programs, you can either make payments on a weekly or biweekly. This enables you to manage your money better since you know exactly how much goes into paying your mortgage.
This is a great financial product that is ideal for people who are disciplined in the way they handle their cash. Even those who max out their earnings faster than you can say Jack Robinson can learn how to save and budget with a mortgage accelerator program.
Drawbacks of a mortgage accelerator program
HELOCs are ideal for people who have a steady cash flow. But if you have a negative cash flow, you will only add to your mortgage debt.
Despite the fact that mortgage accelerator programs (HELOC) enable you to pay off your mortgage faster, there are some drawbacks. Some of the disadvantages of using mortgage accelerator programs include:
- High interest – your mortgage accelerator loan program may have higher interest rates than the traditional mortgage loan.
- High fees – with biweekly mortgage plans, lenders tend to charge a setup fee and a monthly fee. There may be other additional fees you may end up paying for as well.
- Ties your money up – with bi-weekly mortgage plans, you are obligated to make payments towards your mortgage every 2 weeks. So even if you need extra money to pay for something or buy something, your biweekly mortgage payment have to be made.
Remember, when you decide to have a bi-weekly mortgage plan, you have the option of creating one yourself or you can choose to hire a financial services company to do this for you.
But you have to pay an initial fee and then some amount each year to the service provider. So this can be costly and quite frankly, it is unnecessary because you can manage a HELOC account on your own.
Bi-weekly mortgage plans are different from bi-monthly or semi-monthly mortgage plans. Since payments are made every 2 weeks with a bi-weekly mortgage plan, this translates to 52 weeks per year. So in total, you make 26 payments per year.
The one thing about bi-weekly mortgage plans is that you don’t need a lender to create one for you. You can create one for yourself, or you need to do is make the extra payments whenever you get your paycheck. Of course, this requires a lot of discipline and good planning.
The advantage of creating and managing your bi-weekly mortgage plan is that you don’t have to pay any fees, which lenders charge for this kind of service.
So if there is a company offering to change your bi-monthly plan to a bi-weekly mortgage plan for a fee, you are better off doing it yourself. Furthermore, you be able to cultivate good habits when it comes to managing your money.
Lastly, make sure that your mortgage loan does not have a prepayment penalty. While not many mortgages have a prepayment penalty, some do.
Avoid these types of mortgages because they will penalize you for trying to clear your mortgage debt quickly. This is because by doing so, the lender will not earn as much interest as they would like. So do your due diligence, find better options and stay clear of mortgages that have prepayment penalties.