Do you know about mortgage accelerator loan? This is quite a rage in U.S. where home equity borrowing and borrower’s paycheck is used for shortening the time period till a mortgage is paid off and it results in savings to the tune of tens of thousands of bucks in interest expenses.
Mortgage accelerator loan program should not be confused with a biweekly mortgage loan and this program is based on a common approach followed in U.K and Australia. This program is based on the premise that borrowers refinancing existing property use a home equity line of credit and then deposit their paychecks into HELOC and the monthly expenses other than mortgage payments are met by drawing against line of credit either by using ATM withdrawals or bill pay.
In case one doesn’t wind up the extra principal payments within a month still one would be able to pocket some interest savings since the average balance is less compared with conventional loan.
This example will explain you the concept:
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 percent loan rate, that saves you about $10 in interest expense that month.
Via post-gazette
