What is a Mortgage Accelerator Loan?
On our last segment we had a listener who called in with questions about a “Mortgage Accelerator” loan and was wondering what the loan was all about. I was not familiar with the “Mortgage Accelerator” loan and could not give a lot of detail on the pro’s or con’s but promised to give your more information on the product, so here you go.
What is a “Mortgage Accelerator” loan? The best definition I could find comes from Investopedia.
To quote: “A type of mortgage loan popular in the United Kingdom and Australia that resembles the combination of a home equity loan and a checking account. Borrowers’ paychecks are deposited directly into the mortgage account and the mortgage balance is reduced by that amount, then as checks are written during the month, the mortgage balance rises. Any amount deposited in the account that is not withdrawn through the check writing process is applied to the balance of the mortgage at the end of the month as repayment of principal.”
The concept behind the “accelerator” is that when your paycheck is deposited it reduces your average monthly outstanding balance on which interest is charged. Additionally, it assumes that the amount of the paycheck that remains in the account at the end of the month and transferred is larger than what it would be under a traditional mortgage. Two companies, Macquarie Mortgages USA and CMG Financial Services recently started offering this loan product in the United States, but is this loan for you?
- It can reduce your average balance on which your interest is calculated.
- It has the potential to offer a line of credit on which to draw in an emergency.
- It does not come with a “fixed rate” option.
- You can accomplish the same reduction in your principal on a conforming loan by making additional principal payments.
This product is certainly something to keep and eye on to see if it catches on in the United States and it will defiantly require a different way of thinking about how we manage our finances. With current “fixed” mortgage rates on conforming 30 year loans just over 4%, the variable nature of the interest rate is something that you definitely want to take into consideration before deciding if this product is in your best interest.