Many homeowners ask “should I accelerate mortgage payments?”. Mortgage acceleration programs offer homeowners ideas—some good, some questionable—about how they can pay off their homes faster. Anything that gets you debt-free faster is good, but some of these programs are more suitable than others, depending on the homeowner’s financial situation.
If the concept of paying off your mortgage faster appeals to you, we want you to know that you can cut years off your journey toward free-and-clear home ownership! Combined with a cash flow plan that takes retirement planning into account, a mortgage accelerator can be one of the best financial decisions a homeowner can make. So let’s see what they are and how they work.
Making extra payments toward your mortgage principal each month can save you a substantial amount of interest over the long term. It can also allow you to pay off your mortgage in full much faster. But before you add to your mortgage payments, consider paying down any high-interest credit card debt that you may have.
What Are Mortgage Acceleration Programs?
“Mortgage acceleration” just means accelerating the time the mortgage will be repaid compared to making the regularly scheduled monthly payments. Accelerating the payments will cause the mortgage to be repaid sooner.
There are many considerations for homeowners who asked the question “should I accelerate mortgage payments?” And there are several different ways to consider acceleration of your mortgage. For example, a homeowner may choose to add extra money to their regular monthly payments. In that case, the extra payments will accelerate the mortgage. As another example, the homeowner may choose to make biweekly payments, by paying half the regular monthly amount every two weeks. That is another type of mortgage acceleration.
Types of Mortgage Acceleration
There are basically three kinds of mortgage accelerator plans to consider for homeowners asking “should I accelerate mortgage payments?”.
Biweekly Mortgage Payments
One type of mortgage acceleration is a biweekly payment plan. The way a biweekly payment plan works is that a homeowner will split their monthly mortgage payment in half and pay each half every two weeks. By paying half the mortgage every two weeks, the homeowner makes 26 payments (52 week per year / 2). Each payment is half the regular mortgage payment so there are 26 * 1/2 =13 monthly mortgage payments during the year, which is one extra payment per year. A biweekly mortgage acceleration plan will cut four to six years off the mortgage, depending on the interest rate.
Adding Additional Funds Each Month or Periodically
Another way to answer the question “should I accelerate mortgage payments?” is to make regular monthly mortgage payments but add additional funds monthly or periodically. This is another way to accelerate a mortgage. The way it works is that when the bank receives the payment, it credits the additional payment toward principal reduction. The extra funds can be included in each monthly check, or periodically if the homeowner cannot add additional funds each and every month. The mortgage acceleration effect will be variable and based on the frequency and amount of additional funds that the homeowner adds to their payments. In order for this type of mortgage acceleration to work, the homeowner should contact their lender and make sure that additional funds that the lender receives over and above the monthly scheduled payment will be credited toward principal and not toward pre-payment of interest.
Smart Loan Mortgage Acceleration
The third type of mortgage acceleration is a system that utilizes the homeowner’s income to offset a portion of mortgage principal. Many people throughout the world use this type of mortgage acceleration system because it’s offered by their lenders. Mortgage lenders in many countries offer a mortgage account combined with a checking account. This type of mortgage acceleration system gives homeowners a big advantage in helping them to pay off the loan sooner. The way it works is that when the homeowner deposits their paycheck into this blended account, the deposit reduces the mortgage principal by the amount deposit. Because the mortgage principal has been reduced, even temporarily and for a small amount, the monthly accrued interest is less. Because monthly interest is less, when the homeowner sends in their monthly mortgage payment, more of the payment automatically goes toward further reduction of principle.
When the homeowner withdraws funds to pay bills at the end of the month using funds from the blended account, the mortgage principal increases by the amount withdrawn, but any funds that remain in the account work to further reduce the mortgage principal.
This type of mortgage acceleration system has the potential of cutting many years off the mortgage, and is favored by many homeowners in countries where this type of mortgage is offered. Unfortunately, no lenders in the United States offer this type of blended mortgage/checking account. However, the effect of doing this can be duplicated in the United States by use of a mortgage offset loan account. This can be a HELOC (home equity line of credit) or even the homeowners own funds that can be used as a smart loan to offset the mortgage.
Homeowners Using Mortgage Acceleration Have Greater Retirement Savings
It has been proven many times over that homeowners who accelerate their mortgages have more money in their retirement account when they reach their senior years. The key here is to have a financial planning system that combines mortgage acceleration and retirement planning in one simple financial system.
To answer the question “should I accelerate mortgage payments?”, homeowners can schedule a free demo of such a financial plan from Smart Loan Advisors. You’ll be surprised at how much greater savings your retirement will become using mortgage acceleration.
Learn How Much More You'll Have For Retirement
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