A mortgage accelerator program allows homeowners to get out of debt sooner and pay off their balances in full. While that sounds like a no-brainer, it has a few downsides to consider, such as higher monthly payments. There’s more to mortgage accelerator programs than making an extra payment here and there. This guide will explore some of your options.
The Concept of Amortization for Mortgage
Mortgage accelerator programs exist because of amortization. Lenders front-load your interest payments in your mortgage’s amortization schedule. On a typical 30-year mortgage, less than half of your monthly payment goes toward the principal for more than a decade. Paying the principal directly more often reduces the total balance and gives interest less of an opportunity to grow.
Why Consider a Mortgage Accelerator Program?
A mortgage accelerator program can get you out of debt sooner. Housing is the largest expense for most people, and getting out of your mortgage more than a decade early is a clear draw for many people.
Example of Accelerated Mortgage Payments
Assume you have a 30-year mortgage with a $2,000 monthly payment. While inflation will make it easier to cover those monthly payments (i.e., wages go up, but mortgage payments stay the same), it’s possible to get out of debt sooner.
Making two mortgage payments each month instead of one can help you get out of debt 6-8 years sooner. That’s because the extra mortgage payment reduces your balance sooner. However, you’ll have to put $4,000/mo into your mortgage instead of $2,000/mo. Not everyone can afford those extra payments and stay on top of their other bills.
Calculating the Impact of a Mortgage Accelerator Program
Knowing how much you can save can inspire you to embark on a mortgage accelerator program. These are some of the ways you can calculate the impact of additional mortgage payments.
Using Mortgage Calculators
A mortgage calculator lets you determine your monthly payments based on the loan amount, loan term, and interest rate. You can modify the loan amount to see how your monthly payments will change over time.
Comparing Different Payment Plans
Homeowners can review multiple accelerator programs and see how each one will impact their mortgage balances. You’ll get different results if you make a big lump sum right away or spread it across multiple months. Homeowners can also see the difference between making an additional full mortgage payment each month and only making an additional half payment. For instance, if your mortgage is $3,000 per month, you can calculate the difference between an extra $3,000 monthly payment and an extra $1,500 monthly payment.
Projecting Long-Term Savings
Seeing how much you will save in the long run can inspire you to stick with the mortgage accelerator program. It’s a big commitment to make additional payments, but lowering the life of your loan is worth it in the long run if you can keep up with your bills and other expenses.
The Benefits of Accelerated Mortgage Payments
Accelerated mortgage payments offer several advantages that can improve your financial future. These are some of the distinct perks.
Interest Savings Over Time
Making additional payments toward your mortgage minimizes interest accumulation. Interest only grows with a principal; if you reduce the principal, you also pay less interest.
Building Home Equity Faster
Every payment toward your property increases your home equity. While you can borrow home equity to cover various expenses, increasing your equity position also gets you closer to becoming debt-free.
Reduced Loan Term
You can trim off several years from your loan by making additional mortgage payments. A shorter loan term allows you to eliminate the biggest monthly expense sooner.
Increased Financial Security
Paying off your mortgage early is one of the best ways to bolster your financial security. Other expenses will feel easier, and if you have been accelerating your mortgage payments, you can now deploy all of those extra paychecks toward other costs.
Potential Drawbacks of Accelerated Mortgage Payments
Although accelerated mortgage payments have their advantages, it is important to consider the risks before getting started.
Reduced Liquidity
Allocating more of your paycheck toward the mortgage will give you less money to put into your emergency savings account and stock portfolio.
Possible Prepayment Penalties
Some mortgage lenders have prepayment penalties if you attempt to pay off your mortgage early. You’ll have to calculate if the prepayment penalties justify the interest savings.
Financial Load Management
While following an accelerator program will help you get out of your mortgage sooner, you’ll also have to manage your other expenses. Your budget may get tighter around other expenses, which can limit your options.
Most Common Methods of Accelerated Mortgage Payments
Homeowners can choose from several ways to pay off their mortgages sooner. These are some of the top choices.
Bi-weekly Payment Plans
A biweekly payment plan allows you to trim the principal at a faster rate. You can adjust your monthly payment schedule based on your finances and other factors.
Extra Lump Sum Payments
Extra lump sum payments give you the flexibility to only make extra payments when you have a good grip over your other expenses. You can also make this extra lump sum payment if you receive a windfall, such as a bonus.
Making Extra Payments Each Month
Additional monthly payments will get you out of debt sooner, no matter how big or small. You can start with a small amount and adjust how much you allocate toward your mortgage based on your budget. You can make this payment on the same day each month or give yourself more flexibility.
Refinancing for Shorter Terms
Some homeowners start with 30-year mortgages because they’re easier to obtain. However, a higher credit score and better income can make homeowners eligible for 15-year mortgages instead. Refinancing to a shorter term will get you out of debt sooner, but you’ll have to cover prepayment penalties, closing costs, and other expenses. You’ll also find lower interest rates if you shorten your loan term.
Cash-out Refinance: An Alternative to Pay Off Mortgage Faster
A cash-out refinance might be able to help you make mortgage payments faster. While tapping into your home equity may seem counterintuitive, it can help under technical circumstances.
What is a Cash-out Refinance?
A cash-out refinance allows you to access the equity you have built in your property. You’ll end up with a new mortgage that comes with a new rate and term. The new mortgage will have a higher balance, and the difference will be cash that you can access at any time.
How Can a Cash-out Refinance Accelerate Mortgage Payments?
The only route to getting out of debt sooner and using a cash-out refinance is to make higher monthly payments. A homeowner can access equity from a 20-year mortgage and convert it into a 15-year mortgage. While you’ll have higher monthly mortgage payments, the cash-out refinance will give you a buffer to make the initial monthly payments.
You’ll then have to make enough money to keep up with the elevated monthly mortgage payments once you spend the money you received from your cash-out refinance. This approach can give you a head start if you want some reserves to cover the initial monthly payments. However, a cash-out refinance is not the best choice for most people who want to reduce their monthly mortgage payments.
Need help in getting a mortgage refinance? Top Flite Financial is a direct lender specializing in credit-challenged people looking for a mortgage loan or cash-out refinancing. They offer a range of solutions to meet your specific needs, and their team of experts can provide personalized guidance and assistance throughout the refinancing process. Contact them today by answering a few questions to explore your options for mortgage refinancing.
Should You Get a Mortgage Accelerator Program?
A mortgage accelerator program can keep you out of debt. However, you don’t want to fall behind on living expenses, credit card debt, and other financial obligations as you strive to pay off the mortgage sooner. It’s essential to assess your financial situation before committing to any mortgage accelerator program.
