Approximately one year ago, a new mortgage came on to the scene here in the United States. It is called a Home Ownership Accelerator that claimed it could help increase equity faster by combining a checking account with a mortgage. I thought this was an interesting idea so I looked into it. Here is what I found out:
The Home Ownership Accelerator is offered by a company called CMG Mortgage and based on a product that has been successful in Australia and the UK. The basic idea is that you combine your mortgage and your checking account. This is done by depositing your paycheck into your checking/mortgage account. Your paycheck acts as a payment towards your mortgage principal and thereby acts as an equity accelerator. You then use the same account to pay all your monthly bills (preferably at the end of the month – see below). At the end of the month, the Home Ownership Accelerator calculates interest based on the average daily balance of the principal and then adds the interest charge to your mortgage balance.
Advantages of the Home Ownership Accelerator
There are several advantages to this type of set-up though it would appear that the biggest obstacle that potential customers initially have is suspicion or doubt concerning the methods of this program. What most individuals experience difficulty with is wrapping their heads around the idea that with this program, one never technically makes a "mortgage payment." You simply deposit your paycheck and then use the account as your normal checking account, and the Home Ownership Accelerator does the rest. It would be best if one has direct deposit through their employer in order to utilize the Home Ownership Accelerator, but for most people, this will not present a problem. If one does not have direct deposit through an employer, the loan servicing company can simply be phoned and advised to transfer any recent deposit or deposits made into a personal bank account. They can then make the transfer from a personal account to the accelerator account.
By depositing income into the Home Ownership Accelerator, one is able to have the advantage of having 100% of his income applied as a principal payment. This is great because as most people know, at the beginning of a mortgage, not much of the mortgage payments is actually applied towards the principal. With the Home Ownership Accelerator, the entire payment goes toward principal, and since the payment decreases the mortgage balance by leaps and bounds, the interest that is charged is less because the interest is based on the average daily balance.
What about monthly bills, one may ask. Of course, an individual’s paycheck needs to be used for other things in addition to just meeting a mortgage obligation. One maximizes the benefits of this payment program by making all or most of his other payments at the very end of the month (even if that requires an individual to be paying one month ahead of schedule - if unable to change present "due dates"). Also, it is best to use a credit card throughout the month and then just pay the credit card bill with any other bills at the end of each month. Then, the maximum benefit of this program can be realized due to having the accelerator account show the majority of funds being applied toward principal. This is the goal since the interest being calculated is based on the daily balance. Of course, one is free to access funds at anytime conveniently by using the VISA card that is given to you at the time you obtain the Home Ownership Accelerator.
All in all, this is a great program. With some discipline, one could get a mortgage paid off in less than half of the time of traditional loans.
