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Accelerated Mortgages

Purchasing a Home > Accelerated Mortgages
Date: 09/18/2006    Accelerated Mortgages

Payment plans are evolving in an effort to help borrowers save on interest and pay off their mortgages faster in the long run. In addition to the simple idea of paying a few extra dollars each month in order to get ahead, there are several new payment options that are becoming increasingly popular.

Automatic Deduction
In the same format as automatic bill pay, this system automatically takes your mortgage payment out of your checking or savings account each month. This is especially useful for those people who tend to forget to make payments, since a late or missed payment can greatly reduce your credit rating, and this option eliminates that risk.

The Bi-weekly Payment Plan
In this method, the conventional monthly mortgage payment is divided into two bi-weekly payments, so you end up paying in four weeks the same amount you would have paid in a month. Since the payments are on a weekly instead of monthly basis, there are a total of 26 bi-weekly payments, or, in other words, the equivalent of 13 four-week periods per year. That extra payment goes directly toward principal, thus reducing the total lifetime of your loan. People who get paid every two weeks appreciate the bi-weekly plan, since they can pay their mortgage with each paycheck, and anyone, regardless of pay schedule, can appreciate the way this plan has the potential to cut a 30 year mortgage down to only 20 years.

Home Ownership Accelerator
The most revolutionary of them all is the Home Ownership Accelerator, a program where you use your mortgage as a checking account. Each month your full paycheck is direct-deposited into your mortgage, immediately reducing your principal and cutting down your interest. With that done, you can then withdraw money from your mortgage to buy groceries, pay the bills, or go out to eat, just as you would from a regular checking account. The difference is that any unused money is helping to pay off your mortgage, decrease your interest, and reduce the lifetime of your loan. Some restrictions apply, including the requirement to have excellent credit, so be sure to consult with your loan officer to see if you qualify.

Each of these options has great potential to decrease the duration of your mortgage and save you thousands of dollars in interest. Find out beforehand any restrictions and if your lender offers these methods, and then decide what’s right for you.