What is a mortgage accelerator?

Mortgage accelerators promise to help pay off your home loan early, but are they worth it?  (Shutterstock)

Paying off a mortgage can feel like an eternity for borrowers. Many lenders allow you to pay off your home loan early, which can knock thousands of dollars in interest costs off your total repayment.

One way to do this is by using a mortgage accelerator program. These programs promise significantly shorter payoff times, but they also come with fees and risks. In many cases, you can achieve the same results or better on your own.

Here’s a look at mortgage accelerator programs and how they work.

If you’re considering a refinance, you can visit Credible to compare mortgage refinance rates from multiple lenders in just a few minutes.

• What is a mortgage accelerator?
• How does mortgage acceleration work?
• Types of mortgage accelerator programs
• Should you use a mortgage accelerator?
• Alternatives to mortgage accelerators

What is a mortgage accelerator?

A mortgage accelerator is a program that promises to help homeowners pay down their mortgage faster than a traditional loan repayment term. Some accelerator programs are available through banks or credit unions, while you’ll find others through private companies. 

Using a mortgage accelerator program could be a viable option in some cases, especially if you consistently maintain a positive cash flow. While mortgage accelerator programs typically work as advertised, you can pay off your mortgage early yourself instead of using a third-party service. The best part is that it doesn’t cost anything to make extra payments on your mortgage. 

One thing to keep in mind: If you decide to make extra payments on your mortgage, make sure your lender doesn’t charge a prepayment penalty. These are fees that mortgage lenders charge if you pay off all or part of your mortgage early. Not all mortgages have prepayment penalties, so double check with your lender to confirm before you start making extra payments.

How does mortgage acceleration work?

Mortgage accelerator program structures and guidelines vary, but you may be asked to connect your bank account directly to the program or open a home equity line of credit (HELOC). When it comes to making mortgage payments, the company running the accelerator program will do the work for you — often for a fee. 

Potential savings depend on the type of accelerator program, extra payment amounts, accelerator service fees, and other factors.

In recent years, the Consumer Financial Protection Bureau has taken aim at companies offering mortgage accelerator programs due to false advertising and inflated promises that often missed the mark. Some of these mortgage payment companies ended up having to pay hefty civil penalties and return millions of dollars in fees to consumers.

Two types of mortgage accelerator programs

Mortgage accelerator programs typically fall under two program structures — mortgage HELOC or biweekly payments. Each program can reduce your lifetime interest costs, but they work differently.

Mortgage HELOC accelerator

With this program, you’ll open a HELOC and deposit your paychecks directly into the HELOC account.

Essentially, you’ll use the HELOC account as a checking account, depositing your paychecks and paying all your monthly expenses using funds from the account. The mortgage accelerator company then takes whatever deposited income is left at the end of the month and applies it to your mortgage principal. 

As long as you earn more than you spend, you’ll gradually pay down your HELOC and build equity in your home. Once you pay down your HELOC, you can then borrow more from the HELOC to put toward your mortgage. 

The idea behind this strategy is that it’ll enable you to knock several years off your mortgage by putting every dollar you save toward the loan.

One potential issue with a HELOC mortgage accelerator plan is that it’s based on having positive cash flow at all times. You could fall further into debt if you spend more than the income deposited from your paychecks throughout the month. Also, most lenders charge expensive fees to set up and manage HELOC accelerator programs. 

Keep in mind that HELOCs typically have variable interest rates, similar to adjustable-rate mortgages (ARMs), but with potentially more frequent swings. HELOCs are tied to prime rates and can change quickly depending on market conditions. As rates change, you could pay more interest than with a fixed-rate mortgage. 

You can use Credible to compare mortgage refinance rates from various lenders, without affecting your credit.

Biweekly mortgage payments

Other mortgage accelerator programs focus on making biweekly payments to save you money. Instead of making one monthly mortgage payment, the program sets up automatic half-mortgage payments every two weeks. At the end of a year, you’ll make a total of 13 monthly payments instead of 12 payments. 

Most services charge an initial fee to set up automatic mortgage payments from your bank account. Check with your mortgage lender to see if it charges a fee for making extra loan payments. If not, you could make biweekly payments on your own just as easily as a mortgage accelerator program, saving you considerable money on fees. 

Should you use a mortgage accelerator?

Generally, using a mortgage accelerator isn’t a good idea unless you keep a positive cash flow and have difficulty remembering to make extra loan payments yourself. 

Consider the pros and cons of mortgage accelerators before making a decision. 

Mortgage accelerator pros

• You could pay off your loan early.
• You could save significantly on lifetime interest costs.
• You can automate your mortgage payments.

Mortgage accelerator cons

• You’ll likely have to pay a fee to enroll in the program.
• Variable HELOC rates could increase over time.
• You could end up further in debt through a HELOC accelerator program if you spend more than you earn.

Alternatives to mortgage accelerators

The good news is that you can pay off your mortgage early in plenty of other ways without going through a mortgage accelerator program. In many cases, you can do so without paying costly fees or the risk of falling further into debt. 

If you’re leery of using an accelerator program to pay off your mortgage early, consider the following alternatives: 

• Refinance — You could refinance your current mortgage to a lower interest rate and save on the total interest paid on your loan. Refinancing to a shorter repayment term could also help you lower your interest rate and pay off your loan sooner — but you’ll likely have a bigger monthly payment. Pay attention to closing costs and other expenses to ensure it’s worth refinancing. If you want to access your equity for home renovations or other projects, consider a cash-out refinance instead.
• Make extra payments yourself — Instead of going through a third party, make extra loan payments yourself. You can use the biweekly method of half payments or make extra payments whenever you can afford it.
• Mortgage recast — Contact your lender to see if it offers mortgage recasting, which allows you to make a one-time lump sum payment toward your principal balance. In turn, the lender reamortizes the loan, or recalculates principal and interest payments based on the new loan balance.

Before you apply for a refinance loan, visit Credible to quickly and easily compare mortgage refinance rates.