By Bob Mangold

Accelerator loans, common in Australia and the U.K. but new to the U.S., use special accounts that encourage paying off your mortgage in 1/3 the time of a traditional 30 year loan

A different type of home loan, called a mortgage accelerator, has migrated to the United States. It uses several methods of savings or a line of credit and a borrower’s paycheck to shorten the time until a mortgage is paid off, potentially saving tens of thousands of dollars in interest expense.

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For a more detailed explanation and video tutorials, visit;  www.azmortgagecalculator.com/presentation

Not to be confused with biweekly programs that shorten a mortgage through extra payments, the mortgage-accelerator program is based on an approach common in Australia and the United Kingdom, where borrowers deposit their paychecks into accounts that, every month, apply every unspent dime against the mortgage loan balances.

In Australia, more than one-third of homeowners use mortgage-accelerator programs. In the U.K., it’s about 25% of all loans originated.

The premise is that borrowers utilize a savings account or line of credit. Borrowers then directly deposit their entire paychecks into the credit accounts. Monthly expenses, other than mortgage payments, are funded by draws against the lines of credit or savings account, whether those are through automatic withdrawals, checks, cash withdrawals or credit cards. Even if borrowers end up not paying anything extra on the principal during a month, they still capture some interest savings because the average balances are less than they would have been with conventional loans.

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Here’s how it works

As an example, let’s say your mortgage payment on a conventional fixed-rate mortgage is $2,000 and your monthly net income is $5,000. With the mortgage accelerator, even if you spend the $3,000 difference, your average mortgage balance for the month is $1,500 less than it was with the conventional mortgage.

That’s because the entire $5,000 is deposited in the loan account and you made draws of $3,000 for living expenses spread over the month. At a 7.75% loan rate, that saves you about $10 in interest expense that month.

Now, $10 here and $10 there does add up over time, although both loan programs have annual fees of $30 to $60, but the accelerator part of the mortgage lies in having all your net pay going against the mortgage and an assumption that you have a positive monthly cash flow — meaning you don’t spend as much as you make.

For a more detailed explanation and video tutorials, visit;  www.azmortgagecalculator.com

For a free analysis of your mortgage, visit; www.azmortgagecalculator.com

Help for the undisciplined

Of course, all borrowers already have that money available with a conventional mortgage and without the cost of refinancing. A borrower would simply need the financial discipline to use all that money as an additional principal payment.

For the undisciplined, the mortgage-accelerator program makes the additional principal payments automatically. That’s the real hook to this program: Unless you spend the money by drawing against your savings or line of credit, your paycheck goes toward paying off the house.

Where a mortgage-accelerator loan program gives a homeowner additional flexibility, however, is in having a line of credit or savings available if there is an emergency need for cash. If you make additional payments on a conventional 30-year fixed-rate loan, you can’t borrow that money without taking out a home-equity line of credit or a home-equity loan. (which may not be available at the current time)

With the mortgage-accelerator program, you already have the line/savings in place. That gives homeowners confidence that they can be aggressive in paying their mortgages and still have money readily available if a financial emergency crops up.

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