Mortgage Accelerator

A Mortgage Accelerator is a type of mortgage loan program that combines a mortgage loan with a checking account.

What is a Mortgage Accelerator?

A mortgage accelerator is a type of mortgage loan program that functions similarly to a mortgage loan and a checking account. Borrowers' paychecks are instantly put into the mortgage account, lowering the mortgage balance. The mortgage balance rises, If checks are written on the account during the month. Any funds deposited into the account but not withdrawn by writing a check will be applied to the mortgage debt at the end of the month as a principle repayment.

In the mid-2000s, mortgage-accelerating loans were first offered in the United States. Despite their growing popularity in the United States, they are more extensively used in Australia, the United Kingdom, and Canada.

Key learning points

• A mortgage acceleration loan is a type of loan that promises to assist homeowners pay off their mortgage faster than a more traditional loan.

• Faster repayments save money in the form of less interest owed throughout the life of the loan, which is one of the benefits of these types of loans.

• Such loans frequently have higher interest rates and annual fees, which can be troublesome for borrowers with lesser incomes.

• One program finances uses a home equity line of credit (HELOC) to finance a mortgage; pay slips are deposited into the HELOC account, monthly expenses are deducted from the HELOC, and the balance at the end of the month goes toward the mortgage.

How a Mortgage Accelerator Works

The difference between a mortgage acceleration loan and a standard 30-year fixed-rate mortgage is significant. Instead of a fixed-rate loan, house buyers who participate in a mortgage accelerator program receive a line of credit with variable-rate equity (HELOC). Many lenders provide the accelerator for both new home purchases and refinancing existing mortgages.

By making irregular payments on a traditional amortizing mortgage, a traditional mortgage holder can accomplish the same early principal retirement as a mortgage accelerator program, so decreasing the life of the mortgage and achieving interest savings.

Mortgage acceleration program have a number of potential benefits. One of their most appealing aspects is When a borrower's salary is put into the mortgage account. Because it reduces the outstanding principal balance of the mortgage, on which interest is computed, on a monthly basis. This is true, if the principal balance at the end of the month is the same as the balance at the start of the month.

Another benefit of the plan is that interest is compounded everyday. Furthermore, the amount of money remaining in the account at the end of the month may be higher than the amount paid for the mortgage principal under a standard amortizing mortgage. When this happens, the principal is paid off early, shortening the period of the loan and saving money on interest.

Limitations of Mortgage Accelerator Loans

Borrowers who have more money coming in than going out are typically the greatest candidates for mortgage accelerator loans. Negative cash flow borrowers would keep adding to their mortgage debt.

The mortgage acceleration program may have a higher interest rate than a tradional mortgage, which could be a disadvantage. Because this sort of loan has a variable interest rate, this is especially true in a rising interest rate environment.