What Is a Mortgage Accelerator Program?
How Does a Mortgage Accelerator Program Work?
Generally, homeowners can speed up mortgage payments by making extra payments on the mortgage’s principal every month.
The mortgage accelerator program works differently depending on the type (whether a biweekly mortgage payment accelerator or a HELOC accelerator).
Types of Mortgage Accelerator Programs
There are two main types of mortgage accelerator programs popular in the United States, described below.
1. Biweekly Mortgage Payment
This scheme breaks away from the traditional 30-year fixed-rate mortgage by letting borrowers pay half of a regular monthly mortgage payment every two weeks. The main benefit of a biweekly program is that the extra payment every year effectively reduces the principal, knocking a few years off the mortgage payment.
Homeowners end up making 26 half-payments or an equivalent of 13 monthly payments in a year, which means they are paying one whole extra principal payment. However, by increasing principal contributions, homeowners can pay off their mortgage in less time.
For example, one homeowner pays $5,000 each month on a mortgage. Under a biweekly scheme, they will split that amount in half and pay once every two weeks, which means they would instead pay $2,500 every two weeks to reduce the accrued interest on the balance.
Generally, a biweekly payment allows a homeowner to shorten the payment period by four to eight years for a 30-year, 4% mortgage. However, the amount that homeowners can save depends on the interest rate and the size of the loan. For example, a biweekly program can save up to $10,000 in interest for a $100,000 mortgage with a 4% interest rate.
2. HELOC Acceleration
Also known as a “money merge,” HELOC acceleration works by allowing a homeowner to borrow money against the HELOC’s revolving line of credit to pay off the mortgage. This type of mortgage acceleration is also used in the United Kingdom and Australia.
This route lets homeowners finance the amount through a HELOC account. This gives them the ability to borrow up to a certain limit, up to 85% of the equity. While other homeowners use a HELOC to pay for other expenses, HELOC acceleration involves withdrawing a sum to pay off the mortgage first and the monthly expenses second.
In this scenario, because the homeowner now owes their HELOC and not the mortgage for that month, they can directly deposit their paycheck into the HELOC account to pay off their HELOC debt. They can let the balance from their paycheck go toward paying off the mortgage again or take out a portion of it for expenses, essentially paying the mortgage extra after all the expenses have been paid for.
The deposits that borrowers make into the HELOC account every month reduce the average principal balance of the mortgage for that period. This, in turn, minimizes the amount of interest that the homeowner pays while building up their equity even further.
Suppose a homeowner needs to pay $5,000 for that month toward their mortgage. To use HELOC acceleration, the owner withdraws $5,000 from the HELOC and uses that $5,000 for the monthly payment. This way, the owner now owes the HELOC, not the mortgage for that month.
Next, they deposit the entire paycheck into their HELOC to pay off that $5,000. Say the owner’s paycheck for that month is $6,000, covering the entire debt of $5,000 and then some. Because the owner now has $1,000 extra, they can choose to let that entire extra go toward the mortgage principal, or they can withdraw some of it (say, $600 for monthly expenses). What’s left can be used toward the mortgage payments.
Pros and Cons of Mortgage Accelerator Programs
Legitimate mortgage acceleration programs can help real estate owners get out of mortgage debt more quickly and save up to eight years’ worth of payments and interest.
However, HELOC acceleration or money merge programs require homeowners to sign up with a third party to automate and track the best time to pay for the mortgage using HELOCs. These companies may charge extra fees for participating in mortgage accelerator programs, ranging from $200 to $500 plus recurring (monthly or annual) handling fees and other expenses.
In addition, a risk of a HELOC acceleration program is that HELOCs have a variable interest rate depending on market conditions. If interest rates rise dramatically, the homeowner may end up paying more interest than what they could save. In this case, it might be better to opt for a basic home loan with a lower rate and no fees.
Alternatives to Speeding Up Mortgage Payments
Any scheme to pay off the mortgage quickly, including mortgage accelerator programs, lies on the premise of simply paying off the principal as much as the homeowner can.
Homeowners can increase their monthly (or quarterly) payments by whatever amount they can afford more than the minimum and use the extra money to pay down the principal. This way, borrowers can cut years off the mortgage payment and lower the overall balance.
They can do so in many ways. First, homeowners can mimic a biweekly mortgage accelerator program by opening a separate bank account dedicated to mortgage payments and scheduling half-payments every two weeks. Some banks do not charge for scheduling; if the bank has a mobile app or online service, the account holder can simply do this on their own.
Second, homeowners can send as much of the disposable income as they can to pay off the mortgage, similar to HELOC acceleration. This requires the discipline to set aside whatever cash is left after paying the monthly bills and use it for the mortgage. This effectively saves the owner some cash instead of paying another company to do it for them, but this requires manual attention.
Finally, refinancing a 30-year loan (either for a shorter 15- or 20-year mortgage or a mortgage with better terms) is a legitimate route. By making larger, regular payments, homeowners effectively lower the interest rate and shorten the mortgage term.
- A mortgage accelerator program can help homeowners settle their mortgage much more quickly, by up to four to eight years saved (depending on the interest rate of the mortgage).
- There are two major types of mortgage accelerators: the biweekly mortgage payment accelerator and the HELOC accelerator. These programs involve extra payments on the loan to pay off the principal much quicker.
- People with large savings or who do not need to max out their equity to fund day-to-day expenses may find mortgage accelerator programs valuable. Those who cannot manage money responsibly, however, may end up accruing more debt.
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