"Pay off your mortgage in as little as 1/3 to 1/2 the time without refinancing your current mortgage or increasing your current mortgage payment!"
Have you seen sale clauses like this in the internet, heard over the radio or read it in the newspaper? I bet you have. Are you wondering whether this is true or not? Unfortunately, this has been safe guarded by thousands dollars, until you pay the price, the firm will not let you test it out yourself.
A new study by The folks of yourBonus.org attempting to validate these clauses has found that there clauses take advantage of an overlooked fact in the calculation.
Here is the classical example, a home owner with primary 30 year mortgage at 6.5% and a HELOC at 7.5% carrying no balance. He follows the Mortgage Acceleration software, which means he direct deposit his pay check into his HELOC as soon as he gets it. And then he pays off his monthly bills from his HELOC very close to the due date to minimize his balance level in the HELOC account. Suppose he is a person with positive cash flow. His monthly money goes into HELOC is about $8,000, and his monthly bill, including primary mortgage payment, property tax, food, credit card and so on, but excluding required HELOC payment is $6,500. Directed by the software, he can pay off his primary loan in 15 years. Click here to see how we calcualte pay off schedules.
This person has $1500 extra each month, we think it will be FAIR to say he will apply the $1500 into his primary if he doesn't have HELOC and knows nothing about Mortgage Accelerator. Here is the astonishing part, this is the most people overlooked. This is the fact that most mortgage acceleration selling clause takes advantage of.
How much is the interest saving without Mortgage Acceleration? Using the amortization in Excel from the Mortgage forum, we can calculate how soon he will pay off. The result is 183 payments, with total interest payment to the bank at $353,379.
How much is the interest saving using Mortgage Acceleration? This includes both interest payment to primary mortgage and HELOC. The interest paid into primary mortgage is 343k$. The interest paid into HELOC is $17k. The total is $360k.
So eventually, the person loses about 7 grand following Mortgage Acceleration.Click here to see how we coming up these numbers here.
But in other cases, Mortgage Acceleration does save home owner some money. When HELOC interest is lower, home owner is borrowing money from low interest account pay into higher interest one. Another case is home owner already have a balance in HELOC, we think this case it is wise to follow mortgage accelator.
Click here and to see all these cases run.
Peter Lewis is a senior software manager working for an asset management firm. He enjoys working with numbers and computers (read nerd). Lately when he is not working with numbers, he also likes to write article.