You know. Out of all places I would read about this type of "accelerated" mortgage payment scheme…..I just was thumbing through the latest issue of the Costco Connection magazine..errr. infomercial while sitting on my throne in the morning. There was an interesting article about this from Suzi Orman. Sorry, it's not quality reading, nor do I really like Suzi…But…
Page 15. The irony.. The person asking the question about this type of loan is from Temecula.
Here's the text..
The downside of accelerating loans
We are looking at refinancing through an “accelerating loan.” You put all your monies in the account and it pays down your mortgage daily according to your balance. Can you tell us about this new loan? —Lisa Adams, Temecula, California
Suzi Says. STOP LOOKING! With this type of deal you set up a home equity line of credit (HELOC) and your paycheck is automatically deposited into the account. You then basically use it as a mega-banking account. From it you pay all your bills, and whatever is left over is used to pay down your mortgage. The idea is that if the money you put into the account each month (your paycheck) greatly exceeds your expenses, you should have plenty left over after paying your bills to make an extra-large mortgage payment. The allure is that you will end up paying off the mortgage ahead of schedule, saving thousands in interest payments. I am all for accelerating paying off your mortgage, but not with a deal like this. First, you’re stuck with a HELOC, and that means your interest rate can and will change depending on the direction of general interest rates. Even if you think interest rates might be heading lower in the coming months, there’s also the possibility that they could rise in the future. That’s the risk with variable-rate loans, and it’s a risk millions of homeowners are struggling with right now. And if you ever run into a month when your expenses exceed what you owe, you will have to draw on the line of credit —that is, borrow more. You can get your mortgage paid off faster without refinancing into one of these newfangled loans (and paying refinancing lender fees). All you have to do is send in extra principal payments whenever you can on your existing mortgage. Make one extra payment a year on a 30-year mortgage and you will cut your payback time down to about 25 years.
