| Mortgage Loan Payoff |
| By Credit Federal |
Published
08/6/2007
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Home Loan
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Mortgage Loan Payoff Accelerator
Want to payoff your mortgage loan faster? A new, mortgage accelerator loan program solution offers home buyers a variable rate home equity line of credit (HELOC) instead of a fixed rate loan for their first mortgage. Their paychecks are deposited into the account and they can withdraw money to pay bills and other expenses as well as the mortgage.
Any extra cash left over is paid on the HELOC. The money put into the account beyond interest owed applies against the mortgage loan balance, accelerating payoff and potentially saving tens of thousands in interest. And; when the account holder deposits a check, the debt immediately falls for a lower balance used to calculate interest. If the paycheck arrives on the first of the month but the mortgage isn't due until the 28th, the balance falls by the size of the paycheck for all the days between.
Calculate mortgage refinancing payments and interest.
If you net $1,500 every two weeks, you could save $12 or $13 a month, which could knock 10 months off the term of the loan and save almost $10,000.
Of course, this type of mortgage loan is suitable only for borrowers who generally have more money coming in than going out. Borrowers with negative cash flow would just keep adding to their debt. Lenders scrutinize the loan to value ratio (the amount owed compared with what the property is worth), and desire it to be 80% or better.
Another option; other than a mortgage accelerator, is to invest extra cash in higher yield securities such as equities and use that to pay off low interest debt like a prime mortgage. The variable interest rate can also be higher on a HELOC than on a fixed rate loan.
To figure out if a mortgage accelerator is right for you, make sure you won't end up spending to the point where cash flow goes negative territory or it would slow down pay off instead of accelerating it. Basically, if you already have fairly good discipline a mortgage accelerator may be a good deal.
For example, a borrower with a $200,000 mortgage and who takes home $2,000 every two weeks and saves 20% of net pay, could have the mortgage paid off in 12 years with an accelerator versus a conventional 30 year fixed rate loan. The interest would also drop by $125,000.
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