A mortgage accelerator is a home loan structured in a way designed to reduce the amount of interest paid over the life of the loan, saving money for the borrower. In addition, borrowers can pay down the principal more quickly, cutting down the overall term of the loan. This mortgage product has advantages and disadvantages that should be weighed when considering mortgage options and consumers may want to be aware that they can achieve many of the same benefits offered with a mortgage accelerator on their own with a conventional loan.
In a mortgage accelerator, the borrower deposits paychecks and other income into an account linked with the mortgage. As soon as money is deposited, it is taken off the loan balance. The borrower writes checks against the account over the course of the month, causing the balance to creep back up. Essentially, the borrower has a combination mortgage/checking account/home equity line of credit. The advantage to this plan is that by paying down principal at the start of the month, people save on interest. While the savings may be small in a given month, it adds up over time. In addition, the borrower often ends up paying slightly more against the loan than he would with a regular mortgage payment.
There are disadvantages. Having a mortgage accelerator can make it challenging to save money, as people need to withdraw money from the account to put it in savings. In addition, the interest rate is often higher than on a conventional loan, and thus the interest savings might not amount to much when compared with the interest paid over a conventional loan's lifetime. A mortgage accelerator can also be difficult to refinance, as consumers must consider the fact that it is linked with the account they use for managing daily expenses.
This financial product is offered by a variety of institutions. When shopping for a mortgage accelerator product, people should evaluate offerings from several mortgage companies. It may be possible to get better interest or negotiate better terms by comparing and contrasting loan products from several companies.
People interested in setting up a version of a mortgage accelerator without officially having such a loan should apply for mortgages that do not include prepayment penalties. Mortgage payments can be sent out early in the month to limit interest accumulation, and people can also plan on paying more than the minimum every month to pay down the principal. Especially at the start of repayment, when much of each payment goes to interest, overpaying will rapidly reduce the principal balance and limit the amount of money spent on interest.