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 Dear
Dr. Don,
A company by the name of CMG out of California is offing me a plan called a "Homeowners Mortgage Acceleration Plan" whereby I deposit all my income into this spending plan and my mortgage will be paid off in half the time. Your views would be appreciated.
-- Jim Jibbed
 Dear
Jim,
I wrote about this plan last fall. The feature,
"Mortgage
accelerator loans come to the U.S.,"
specifically discusses the CMG plan. I took a
cautious tone with the piece, saying that homeowners
are likely to do as well on their own if they
aggressively prepay their conventional mortgage
versus using an equity accelerator program. This
mortgage structure is, however, becoming more
popular.
The basic premise of the accelerator
programs is for the homeowner to deposit all of
his or her income into paying down a home equity
line of credit that is used to finance the home.
All household expenses are paid by drawing against
the line of credit. This minimizes the average
balance on the loan during the month reducing
interest expense, and has all cash surplus in
the monthly household budget go toward paying
down the mortgage.
A
consumer advocacy group spokeswoman, Carolyn Bond, of the Consumer Law Action
Centre in Melbourne, Australia, has written in to comment on these loans. Here's
what she has to say about this type of mortgage structure: I
have been tracking the "mortgage accelerator" industry in Australia
for over five years, and after examining the programs offered to consumers and
representations made, I am convinced that very few -- if any -- consumers save
money using a HELOC in this way. In fact, many end up paying more for their mortgage.
In almost all cases consumers are led to believe that significant projected savings
are due to keeping funds in the mortgage, where they are actually due to the tight
budget included in the example or program. Using
all your excess cash to pay down the mortgage shortens the life of the loan. Paying
HELOC rates, currently at 8.25 percent versus the national
average of 6.58 percent for a 30-year fixed-rate loan negates the intra-month
interest rate savings of the equity accelerator program.
You don't need an equity accelerator
program to shorten the life of your loan, just
the financial discipline to make additional principal
payments each month. Bankrate's Mortgage
payment calculator will show you how a payment
plan shortens the life of your loan.
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