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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