Mortgage Accelerator Definition

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Mortgage Accelerator Definition

What Is a Mortgage Accelerator?

The term “mortgage accelerator” refers to a particular kind of mortgage loan program that combines the features of a bank account with a home equity loan. Payroll deposits made by borrowers are made straight into the mortgage account, and that sum lowers the mortgage debt. The mortgage amount then increases as checks are issued against the account throughout the month. Any funds placed in the account that are not withdrawn by check writing are applied to the mortgage balance as principle payments at the end of the month. In the middle of the 2000s, mortgage accelerator loans were initially advertised in the US.

Key Takeaways

  • A mortgage program known as a mortgage accelerator loan promises to help homeowners pay off their mortgages more quickly than they would with a more conventional loan.
  • This kind of loan is appealing since it saves money throughout the course of the loan because there will be less interest due.
  • The drawbacks of these loans include their often higher interest rates, yearly fees, and potential difficulty for applicants with lesser incomes.
  • In one arrangement, a home equity line of credit (HELOC) is used to finance a mortgage; wages are placed into the HELOC account; monthly expenditures are paid from the HELOC; and any remaining funds at the end of the month are applied to the mortgage.

How a Mortgage Accelerator Works

A 30-year fixed-rate mortgage and a mortgage accelerator loan are extremely different from one another. Homebuyers who participate in a mortgage acceleration program get a variable-rate home equity line of credit (HELOC) for their first mortgage rather than a fixed-rate loan. Many lenders provide the accelerator for both refinancing an existing mortgage and buying a new house.

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By making unscheduled principle payments on a regular amortizing mortgage, a mortgage holder may achieve the same early principal retirement as in a mortgage accelerator program, reducing the length of the mortgage and earning interest savings.

Mortgage accelerator loan programs might provide a variety of advantages. The fact that a borrower’s paycheck is transferred into the mortgage account is one of their most appealing advantages. because it lowers the mortgage’s average monthly outstanding principle amount, which is what is used to calculate interest. Even if the principle balance at the end of the month is the same as it was at the beginning, this still holds true.

The plan’s daily interest accrual is another another benefit. Additionally, compared to what would be paid toward the mortgage’s principal balance under a conventional amortizing mortgage, the amount of the paycheck that is still in the account at the end of the month may be higher. When this occurs, the principle is paid off early, shortening the mortgage’s overall term and saving interest.

Limitations of Mortgage Accelerator Loans

The majority of the time, borrowers who regularly have more money coming in than going out are the best candidates for mortgage accelerator loans. Negative cash flow borrowers would continually increase their mortgage debt.

The possibility of a higher interest rate than a conventional mortgage is one possible disadvantage of the mortgage accelerator loan program. Because this sort of loan also involves a HELOC, which often has a variable rate, this is particularly relevant in an environment when interest rates are increasing.

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