In the home loan market, a number of mortgage prepayment programs—sometimes called mortgage accelerated loans, homeowner accelerated loans, or mortgage accelerated programs—are gaining traction. They promise to help you pay off your mortgage faster, saving you interest over the life of the loan.
What is a mortgage accelerator?
A mortgage accelerator is a mortgage program similar to a combination home equity loan and checking account. The borrower’s salary is deposited directly into the mortgage account, and this amount reduces the mortgage balance. Then, when the monthly check is deposited into the account, the mortgage balance increases. Any amount deposited into the account but not withdrawn through the checking process will be credited to the mortgage balance at the end of the month as repayment of the loan amount. Accelerated mortgages first became available in the United States in the mid-2000s.
Types of Mortgage Accelerated Loan Programs
One type of mortgage accelerator loan is sometimes called a HELOC accelerator. This type of loan combines a bank account with a mortgage and a HELOC, or home equity line of credit, into one product. Instead of a traditional or adjustable-rate mortgage, borrowers finance their mortgage with a HELOC and then start depositing their paychecks into the HELOC account. Then, monthly expenses other than the mortgage — such as utilities, car payments, grocery bills, and insurance — are all paid by drawing money from the line of credit. The rest of the money goes into the mortgage.
One such product, Bullara explained, is an all-in-one loan from mortgage lender CMG Financial that “enables homeowners to pay more in interest in the short term while giving them access to the equity accumulated in the property.” According to CMG Financial’s website , the homeowner deposits less than the loan principal into the account, and interest is calculated on the average daily balance.
This type of mortgage acceleration program is popular in other countries, including Australia and the U.K., but is just starting to gain a foothold in the U.S.
How does mortgage acceleration work?
The structure and policies of Mortgage Accelerator programs vary, but you may be asked to link your bank account directly to the program or open a Home Equity Line of Credit (HELOC). When it comes to mortgage payments, companies that run accelerator programs will do the work for you—often for a fee.
Potential savings depend on accelerator program type, additional payment amount, accelerator service fee, and other factors.
In recent years, the Consumer Financial Protection Bureau has targeted companies offering mortgage acceleration programs because false advertising and overpromising often fall short. Some of these mortgage payment companies ended up paying huge civil penalties and repaying consumers millions of dollars in fees.
Are Mortgage Accelerator Loans Worth It?
While everyone is talking about accelerated mortgage loans, these programs aren’t for everyone. Most have an annual fee – just like a credit card – and these are funds you can use directly to pay off your mortgage. Plus, forgoing a home equity line of credit can actually leave undisciplined borrowers beyond their means, adding years and high-interest debt over time.
“Accelerated mortgages tend to be of particular value to taxpayers with higher or higher interest rates, and those with significant savings who do not rely on accrued interest to fund their day-to-day life,” Bullara said. “High-end taxpayers A big benefit of this is that they don’t have to pay taxes on the interest on savings. This type of loan is more suitable for wealthy borrowers who are not on a tight budget every month.”
Another caveat for homebuyers considering an accelerated mortgage loan is that they may receive higher interest rates and fees compared to other types of mortgages.
“If those rates and fees are higher, you’re probably going to be worse off overall,” Bralla said. “If it seems like you’re paying more than you’re saving, it might be worth considering a simple home loan with a lower interest rate and no fees.”