I’ve been getting a lot of inquiries into these Mortgage Accelerator programs where you open up a Home Equity Line of Credit (HELOC) and use this as your day to day checking account. Your payroll deposits becomes your mortgage payment and then you pay all of your monthly expenses as you incur them from the same HELOC. Some programs would have you payoff your current first mortgage so that your HELOC is the only mortgage against your home. There are other programs that allow you to keep your first mortgage intact and then add a HELOC. The concept is similar to a bi-weekly payment program in that the way you come out ahead is by making additional principal payments to your loan balance over time.
The idea is by direct depositing your paycheck into this home equity account you start saving on your daily interest cost because most mortgages collect interest payments at the end of the month (i.e. your Nov. 1 payment is for the interest accumulated in October.) By paying at the beginning and/or the middle of the month, you are able to start reducing your daily interest calculations which compounded over time can add up to some savings but the significant savings comes from the prepayment of principal.
There are some significant assumptions with these programs. First, that you spend less than you make. Second, that all “extra discretionary” money will be used to help reduce the principle balance and third, that you are disciplined in your budget or finances. There’s one program that you’ll be hearing more about called the “Money Merge Account.” This is offered through a “registered sales rep.” from First United Financial. This program costs $3,500 and it’s primarily a software program that you use in conjunction with a HELOC or a “Money Merge Account.” Be sure to understand how much discretionary income the software is assuming that you’ll be using toward your early payoff date.
Please ask for a second opinion before paying someone $3,500 for a software program plus whatever closing costs are incurred in opening up the HELOC. I know they will tell you that you can pay your 30 year mortgage off in 7 or 8 years and all of the numbers they show in their presentation and their flash videos will tell you that you it’ll work but let’s look at the numbers and discover how realistic the assumptions are.
One downside to these programs is that you will lose your tax deduction on your mortgage interest at a time when you may need it most. Also, if you have other higher interest rate debt like a credit card, department store card, and other loans, it may not make sense to payoff your lower tax deductible mortgage interest first.
As in all cases, you need to evaluate your own situation and evaluate whether this makes sense or not. Before you sign up for any program, take a day or two to look at the numbers, get a second opinion and don’t succumb to the high pressure sales tactics for a product “whose time has come.”
The Cashflow Coach