Mortgage Acceleration

Mortgage loans are certainly a financial burden with anyone who has a one and hence, it is natural that they would be yearning for the day when making monthly payments against the mortgage would stop. In fact, anyone who has a mortgage is always searching for methods to expedite the repayment process and many have found a solution in a procedure known as 'mortgage acceleration'.

For anyone who may be wondering what 'mortgage acceleration' process is, let us tell you that it is a phrase that denotes an exercise to repay or amortize mortgage loan earlier than that is necessitated according to the terms and conditions of the loan secured against a property or asset. Since the interests on mortgage loans accrue through multiplication, making premature payments lessen the time required to clear the loan as well as avert recompensing the percentage of accrued interest.

If you look at it, mortgage accelerators are available in different forms and dimensions and also function at dissimilar planes. However, the main thing or outcome of mortgage acceleration is that if you desire to clear your loans, you just need to put in a greater amount of money to pay it off sooner. Most people who have a mortgage choose to clear off their loans sooner than the stipulated period in such a manner that they will have to undertake the minimum risk, and a method that will in no way have any significant bearing on their way of life as well as the payment arrangement for each month.

There a number of acceleration programs or processes to speed up your mortgage loan repayment that offer you the opportunity to increase the amount of your monthly payments by adding a little bit extra money each time. In fact, such a procedure is very effectual in lessening the term of the mortgage repayment as the small additional amount you make every month is against the loan principal and hence it reduces the overall outstanding amount to be paid to the mortgagee. This, in effect, suggests that you will actually be required to pay lesser money in the form of interest on the mortgage. As everyone is aware, more than the loan principal, it is the compounded interest amount that hurts a mortgagor the most. However, if you can afford to pay an additional $100 every month toward the principal, it will lessen the mortgage loan repayment term by a significant number of years. From what has been discussed above, it is clear that the only method to repay your mortgage loan faster as well as pay a lesser amount in the form of interest is by making additional payments towards the outstanding principal amount every month.

The easiest manner to speed up the repayment of your mortgage loan is to make an additional monthly payment every year. This means you will be required to annually make an extra payment equivalent to the sum of monthly payment mentioned in your mortgage agreement. Here is how it helps to lessen the term of your mortgage. Supposing you have taken a mortgage loan worth $200,000.00 at a an annual interest rate of five per cent amortizing over or for a term of 20 years. The chart presented beneath depicts what happens when you continue paying a fixed sum every month as mentioned in your mortgage agreement. In other words, the table below represents the outcome of not making any additional paying towards the principal loan amount.

 Payment
( $ )
Annual amount
to nourish the
mortgage
( $ )
Total interest
paid over the
life of the
mortgage
( $ )
Amortization
( years )
Monthly payment1,314.2515,771.00115,420.0020.00
Semi-monthly payment656.4515,745.80115,096.0020.00
Bi-weekly payment604.2415,753.40115,068.0020.00
Weekly payment301.9815,746.10114,922.0020.00

From the above table, it is apparent that the monthly payment on the mortgage worth $200,000.00 at five per cent interest for term of 20 years is $1,314.25. And the interest amount you will be paying is something between $114,922.00 and $115,420.00 for the entire term of the mortgage depending on whether you pay monthly, semi-monthly, bi-weekly or weekly This is the interest amount you will be required to pay over 20 years provided you do not make any additional payment towards the mortgage principal.

Having noted this, let us have a look at the table presented below. This table depicts the outcome when you speed up your mortgage repayment by making an additional monthly payment annually, i.e. instead of making 12 monthly payments each year, here you choose to make 13 monthly payments each year. Each monthly payment is equivalent to what has been mentioned in your mortgage agreement ($1,314.25). To be precise, the chart below shows that you will pay $1,314.25 x 13 = $17,085.25 annually, which when equally divided by 12 comes to $1,423.77 each month.

 Payment
( $ )
Annual amount
to nourish the
mortgage
( $ )
Total interest
paid over the
life of the
mortgage
( $ )
Amortization
( years )
Monthly payment1,423.7717,085.2599,504.4317.50
Semi-monthly payment711.8917,085.2598,991.8817.50
Bi-weekly payment655.3217,085.2598,991.8817.50
Weekly payment327.6617,085.2598,821.0217.50

The table above clearly illustrates that by making an additional monthly payment towards the principal loan amount you are not only save on paying extra as interest amount, but also lessen the amortization or term of the mortgage. In fact, an additional monthly payment each year helps you to save as much as $16,000.00 throughout the life of the mortgage.

Now, let us see what happens when you raise the monthly payment by 25 per cent instead of making just one extra monthly payment each year. In this case, you will be saving even more on interest.

 Payment
( $ )
Annual amount
to nourish the
mortgage
( $ )
Total interest
paid over the
life of the
mortgage
( $ )
Amortization
( years )
Monthly payment1,642.8119,713.7278,337.3114.12
Semi-monthly payment820.5619,693.4478,050.9314.12
Bi-weekly payment755.3019,637.8078,028.6914.16
Weekly payment377.4719,628.4477,897.4114.16

The above table shows that when you increase your monthly payment by 25 per cent and pay $1,642.81 each month, you not only save $37,082.69 in interest, but also are able to repay the entire loan in 14.12 years instead of the agreed amortization period of 20 years.

Now, from the table presented below, let us see what happens when you double your monthly payment amount.

 Payment
( $ )
Annual amount
to nourish the
mortgage
( $ )
Total interest
paid over the
life of the
mortgage
( $ )
Amortization
( years )
Monthly payment2,628.5031,542.0040,508.727.64
Semi-monthly payment1,312.9031,509.6040,261.187.64
Bi-weekly payment1,208.4831,420.4840,241.907.64
Weekly payment603.9631,405.9240,127.617.64

You will find an assortment of firms on the market that are offering virtually miraculous mortgage accelerators, or processes that help you to speed up your mortgage repayment. Below we will look at some of these companies and what they have to offer to help people to pay off their mortgage faster. However, we are not sure whether any of these firms are involved in any swindle or not and hence we will refrain from recommending any of them to you. We simply present you with a basic survey of the opportunities available to you on the mortgage market.

Some company from Australia has a very favorable acceleration program to offer to the mortgagors desiring to speed up the repayment of their mortgage loans. In fact, this financial organization claims to solve your mortgage problems by helping you to reduce the amortization period of your mortgages by half or even a lesser period than that in mentioned in your original mortgage agreement. In fact, the firm is actually merging your credit and savings into one financial credit that is organized in a Home Equity Line of Credit better known as HELOC. The online software of the firm directs a mortgagor to make extra payments each month to their first mortgage firm. This process helps the mortgagors to lessen their principal loan amount rapidly as well as the mortgage amortization period, thereby enabling the mortgagor to make substantial saving on interest through the life of the mortgage. Initially, the company will establish your HELOC on their own and then will extract their service fee, amounting to a few thousand dollars, from the HELOC. Although the firm asserts that anyone following their program would benefit significantly, but does not offer any guarantee to its clients.

A comparable mortgage accelerator program has been introduced into the market by another firm. It is fast becoming popular with people having mortgages. According to reports, this company has spent several years and many millions to develop sensitive or discerning software called the Money Merge Account (MMA) that blends the best initiatives from the American, Australian and European banking industry. In fact, the MMA is able to offer a tailor-made as well as accommodating mortgage accelerator plan to each user or client of the firm. The software directs the user or the mortgagor to amortize their 30 year mortgage and other credits on an average in just 8 to 11 years' time. What is interesting is the fact that the company claims that anyone using the MMA need not require to refinance, pay additional monthly installments or affect any change in their standard of living to speed up the loan repayment process. However, a mortgagor will be required to shell out a few thousands in fees that would have to be paid from his or her Home Equity Line of Credit (HELOC).

In fact, the MMA does not deal with your money at all and is not in any way involved with paying your bills for you. On the contrary, the intuitive software offers a synchronized and instantaneous control panel that depicts the current position of the mortgagor, where he or she is heading as well as the actual costs of sundry purchases and deposits. The outcome of any monetary withdrawal or deposit by the mortgagor from the HELOC is tantamount to a modification in the final pay off date of the loan. One advantage of using the MMA is that it can be transferred to any other property owned by the mortgagor and in this case, the software robotically brings all data up-to-date and this service is free of cost. In addition, the company offers the MMA users a guarantee regarding the performance of the software, provided they follow the software's instructions effectively. In the event of the users not being able to reap any benefits even after using the MMA, the company promises to refund the mortgagor the entire money taken from him or her as fees.

Yet another company is claiming to offer a mortgage accelerator program. They are using the interest cancellation effect of a line of credit or the amount of loan that a client is allowed to make use of. This is basically a pricey undertaking as you are required to get new finance to their accounts. The mortgagor's bank account, mortgage loan as well as the credit line or available credit is all interspersed at a variable rate of interest. There are annual fees. However, if a mortgagor is able to save thousands of dollars in interest by paying off the mortgage loan before the agreed amortization period, these recurring fees will eventually prove to be an insignificant expenditure. But the pertinent question here is whether anyone would like someone else to have such vast powers over of his or her monetary state of affairs. We guess that it would be extremely difficult for most mortgagors to accept such a situation.

The bottom line is: if you wish to pay off your mortgage faster, you simply have to apply more money to the loan.

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