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A 30-year mortgage can feel like forever if your goal is to be debt-free. So, you might be tempted by a program that can purportedly help you pay down your home loan faster, saving you thousands of dollars in lifetime interest costs in the process.
These mortgage accelerator programs promise to help you achieve your financial goals, but often gloss over the significant risks and fees involved.
Let’s go over what a mortgage accelerator is, how it works, and what you need to know when considering one:
- What is a mortgage accelerator?
- Types of mortgage accelerator programs
- Should I get a mortgage accelerator?
- Alternatives to mortgage accelerators
What is a mortgage accelerator?
A mortgage accelerator program promises to help you pay down your mortgage and build equity more quickly than with a traditional 30-year fixed-rate loan — saving you money. You may be asked to connect your bank account to the program, allowing the company to handle the mortgage payments on a schedule it prescribes.
Some mortgage accelerator programs may be legitimate services for borrowers from a bank or credit union. Others may charge steep fees for taking part, with questionable benefits.
Types of mortgage accelerator programs
There are two main types of mortgage accelerator programs you may run across.
Biweekly mortgage payment accelerator
Some mortgage accelerator programs will set you up to make mortgage payments every two weeks, rather than the standard monthly payment. For this service, you’ll generally pay an initial set-up fee and then transaction fees every two weeks.
Often, the company running the program will ask you to connect your bank account to the service and make automatic deductions every two weeks. It’ll then handle the process of paying the mortgage. The mortgage accelerator service may actually make a payment on your mortgage every two weeks, or simply hold on to your money and make a single, larger monthly payment.
Contact your servicer first to see if it charges any fees for a biweekly payment plan. If it does, you may still be able to get away with making an extra payment every so often without having to pay a fee.
Mortgage HELOC accelerator
This one is a bit more complicated. With these accelerator programs, you take out a home equity line of credit (HELOC) and use the proceeds of this loan to pay down your existing mortgage.
From there, you essentially use the HELOC as your checking account, depositing your paycheck directly into the HELOC and paying your monthly bills from it as well. If you earn more than you spend, you’ll gradually pay down your HELOC, and thus build equity in your home. After paying down your HELOC, you can then borrow more from the HELOC to put toward your mortgage.
The idea behind this strategy is that it’ll enable you to shave years off your mortgage by putting every dollar you save toward the loan. Programs like this are more common in countries like Australia and the United Kingdom than in the United States.
Should I get a mortgage accelerator?
Putting extra money toward your mortgage can be a good way to save money over the life of the loan and pay off your loan quickly. However, mortgage accelerator programs are generally a bad deal.
You can usually accomplish the same objectives on your own for free, achieving interest savings without paying the fees associated with a mortgage accelerator program or taking on the risk of an additional loan. Talk to your mortgage servicer about the best way to apply extra money in your budget toward your loan.
Mortgage accelerator pros
- You may be able to pay off your loan more quickly. The accelerator program may be able to help you shave years off your mortgage, as advertised, and save you a considerable amount of money in interest payments.
- It automates your payments. A mortgage accelerator program will deduct your mortgage payments automatically, so you won’t have to worry about paying it yourself.
Mortgage accelerator cons
- You’ll pay hefty fees. Mortgage accelerator programs usually charge significant fees, both to set up the program and to complete every transaction. You should be able to achieve the same goals on your own for free.
- Mortgage accelerators may use deceptive marketing. The Consumer Financial Protection Bureau has fined several mortgage accelerator programs for promising significant savings without evidence to back it up, and claiming to make payments toward mortgages more regularly than they actually did.
- HELOC interest rates may rise over time. With the HELOC accelerator program, you add the additional risk of taking on a variable-rate loan.
- You could get deeper in debt. The HELOC accelerator program also requires that you earn more than you spend. If you don’t, you’ll find yourself sinking deeper into debt while not paying down your mortgage.
Alternatives to mortgage accelerators
You have plenty of alternative ways to save on interest, pay off your mortgage more quickly, or lower your monthly payment, including:
- Making extra mortgage payments. Most mortgage servicers allow you to pay more than your required payment, with the additional sum going straight to the principal of your loan. You could even copy one of the mortgage accelerator programs by making payments every two weeks, adding up to an extra month’s worth of payments over the course of the year. Be sure to talk to your loan servicer first to confirm there are no fees associated with making extra mortgage payments.
- Using a mortgage payoff calculator. These web-based calculators can help you figure out exactly how much in interest you can save by putting more money toward your mortgage. You’ll enter information about your loan, including the balance of what you owe and how many years you have left on your mortgage. Then you enter additional principal payments you’re able to make. The results will show you both the money you can save and the number of years you can shave off your mortgage.
- Refinancing your mortgage. You may be able to refinance your current mortgage loan to one with a shorter term and lower interest rate, which can save you money in interest and get you out of debt more quickly.
- Recasting your mortgage. If you would rather put extra money toward your loan in one lump sum rather than additional amounts each month, a mortgage recast may be a good option. When you recast, you make a lump sum payment toward your principal balance, and your mortgage lender recalculates your loan at the lower amount. You keep the same length of time on your loan and the same interest rate, but your monthly payments will decrease based on the lower principal amount.
Credible makes refinancing easy. It only takes a few minutes to get personalized refinance rates from our partner lenders. We also provide transparency into lender fees that other comparison sites typically don’t.