With all the bad news surrounding the mortgage industry, it’s always good to hear about a product that can offer some relief to the beleaguered homeowner. That product is the equity accelerator, which incredibly can cut term and total repayment on a loan by about 50 percent.
The Problem
Traditionally, lenders focus borrower attention on keeping their monthly payment “comfortable.” They are careful not to mention the long-term payoff amount for a 30-year, fixed mortgage loan. The fact that total payout on a house held to term is between two and three times the original purchase price is never mentioned.
Because Americans have typically moved about once every seven years, mortgages have been created to ensure that very little principle is paid off during that period. Almost everything during the early years in the life of a mortgage goes to the bank.
The Solution
The equity accelerator goes by several names including mortgage accelerator and guaranteed equity accelerator, but the effect is the same. The playing field is leveled to an extent and both borrower and lender are able to profit. The homeowner pays off the mortgage earlier, releasing funds to the lender for additional loans.
You are probably familiar with the bi-weekly payment plan, which is actually a precursor to the equity accelerator. This approach requires payment to be made every two weeks. This results in an extra payment per year that reduces the total repayment amount by about 16 percent.
The equity accelerator takes a different approach by opening a money merge account pursuant to the mortgage. This is nothing more than the familiar home equity line of credit which receives all of the homeowner’s “bill money” every two weeks.
All of the monthly bills are paid from this account in addition to the home mortgage payment. Like a normal interest bearing checking account, the funds are earning interest during the period that they are in the account.
The power of this arrangement flows from the interaction between the two accounts, which is totally unrestricted, as described in the March-April, 2008 edition of Personal Real Estate Investor magazine. The way Thomas Chester, CEO of United First Financial, describes it is,
“the secret is repositioning regular income that is effectively idle…The repositioning occurs when income is applied in a lump sum to the balance owing on your line of credit. This keeps the credit line balance as low as possible and significantly reduces interest… more money goes toward paying the principal…each month and the mortgage is paid years ahead….”
The big advantage of the system is its ability to accelerate payoff of all debts in addition to the mortgage by an average of about 50 percent. That includes student loans, car payments, credit cards and most other loans
Although it may be relatively new to the United States, the equity accelerator concept has been used in Australia and other countries for over 20 years. Now finally, the product is poised for roll-out in the United States, offering substantial relief for many American homeowners – at least those with a stable income.
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