'Mortgage accelerator' loans come to U.S.
|By Don Taylor Bankrate.com
A different type of mortgage, called a "mortgage
accelerator" loan, has migrated to the United States. It uses
home equity borrowing and the borrower's paycheck to shorten the
time until a mortgage is paid off, saving tens of thousands in interest
Not to be confused with a biweekly mortgage loan that
shortens a mortgage by paying an extra mortgage payment once a year,
the mortgage accelerator loan program is based on an approach common
in Australia and the United Kingdom, where borrowers deposit their
paychecks into an account that, every month, applies every unspent
dime against the mortgage loan balance.
In Australia, more than one-third of homeowners use
a mortgage accelerator program. In the U.K., it's about 25 percent.
In the U.S., two firms currently offering these mortgages are Macquarie
Mortgages USA, where it is called the Macquarie Asset Manager, and
CMG Financial Services, whose offering is called the Home Ownership
The premise is that borrowers finance a new property
or refinance existing property using a home equity line of credit,
or HELOC. Borrowers then begin directly depositing their entire
paychecks into the HELOC. Monthly expenses, other than mortgage
payments, are funded by draws against the line of credit, whether
that is by using bill pay, check writing, ATM withdrawals or a credit
card tied to the line of credit. Even if you don't wind up making
additional principal payments in a month, you still capture some
interest savings because your average balance is less than it would
have been with a conventional loan.
As a simple example, 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 7¾ percent
loan rate, that saves you about $10.00 in interest expense that
Now $10 here and $10 there does add up over time,
although both loan programs have annual fees of $30 to $60, but
the accelerator part of the mortgage lies in having all your net
pay going against the mortgage and an assumption that you have positive
monthly cash flow -- meaning you don't spend as much as you make.
calculator on the CMG Web site has stock assumptions that you
have 10 percent, 20 percent or even 25 percent of your net pay leftover
each month that you can apply to your mortgage balance. The Macquarie
site has its own simulation
Not for the financially indisciplined
Of course, all borrowers already have that money available with
a conventional mortgage, too -- and without the cost of refinancing.
A borrower would simply need the financial discipline to use all
that money as an additional principal payment.