Mortgage Services and Loan Tips

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There is a new kind of mortgage, and it takes the refinance world by storm. The promoters of this new kind of loan claims that you can pay it off in full in eight years without changing your budget at all! It sounds like it would be ideal for any homeowner. Let's take a look at this mortgage and see if we can find out if it really is all cracked up to be.

This new form of mortgage is usually referred to by many different names, but because its purpose is to accelerate the payment of a mortgage, we will refer to it as an accelerated Mortgages. This accelerating mortgage making use of compounded daily interest, instead of monthly income. It also uses the fact that the borrower and co-borrower deposit their entire paychecks into a mortgage account every time they get paid. So they actually use their mortgage account as their checking account and pay their regular monthly expenses by writing checks against the deposit account. The process of inserting money into a mortgage account before using it for daily expenses saves interest because of the daily mix used by the accelerating plan.

What advertisers for this mortgage does not mention is that to pay off the mortgage very quickly, like in 8 years or so, you each month have to leave more money in the mortgage account than the amount of the regular 30-year mortgage payment would be. The mortgage broker or writer will refer to such as your monthly savings and ask if you put 10, 15, 20, 25 or more percent of your savings on a monthly basis. The amount you tell him will be the extra amount you will be expected to leave in your deposit account each month.

I see three problems with this type of home financing. Firstly, most people near their new houses in a drawn out condition. They save for years to accumulate their payments and then buy the most expensive homes are unable to make payments on. For them, their savings into equity in their houses.

Secondly, if you have the ability to pay for an extra 10, 15, 20 or 25 or more percent of your salary towards any mortgage, you will pay it off a lot quicker than 30 years. For example, it would take 30 years to pay a $ 200,000 mortgage at 6% if you pay the projected Monthly $ 1199.10, but if you add $ 800 for this payment each month, your mortgage is paid in 11 and a half years.

It is true that when you compares an accelerated rate mortgage with a fixed 30-year fixed mortgages, which have the same parameters (principal, interest and term); the accelerating mortgage will reach 0 faster than the 30-year mortgages will. But it would be a matter of several months before, not 22 years as some of the advertisements for the accelerating mortgage lead you to believe.

So what's wrong with paying the same amount in a deposit account and still get it paid off before? Nothing! But here is the problem number three: an accelerated mortgage using a HELOC. (Home Equity Line of Credit), there are some things you should know about HELOCs. First their interest rates are usually higher than a conventional 30-year-old mortgage interest rate. Secondly, they are adjustable-rate mortgages. On top of that they have no cap and they adjust every month. This means that if you find a solid 30-year mortgage at six percent, you know that in four years that the mortgage rate will be six percent. With a HELOC, you can find one at six percent, but about four years you can pay thirteen percent. So much for paying your mortgage quickly, because as you know, when interest rates rise, so does the monthly payment.

We are now in a time in American history, where interest rates are relatively low. With inflation under control, it looks as though interest rates are trending downward. It may well be that the current interest rate downtrend will continue well into 2008, where it will test the post-1960 low of 4.75 percent. After that you never know what the future will bring.

In January 2009, it will U.S. inaugurating a new president. Many of the candidates running for high office would like to turn the free trade policy over the last three presidents. These free trade policies have a large part brought us robust economy with low interest rates we have had since the mid 90s. These candidates would also like to end Bush tax cuts. These tax cuts have tended to cancel the inflationary effects of higher oil prices product prices. Some of these candidates would also like to initiate national health systems. It has been proven that the private sector is more efficient than government run entities. Private sector funds are reinvested and generate more money. When money goes to government as the government run healthcare, it's been sent down a blind alley-way. This is a very inflationary scenario, and inflation means high interest rates.

Not long ago I wrote an article on bi-weekly mortgages. In this article, I called the other week to plan a scam. I do not feel similarly on the acceleration level. I think the accelerated plan is creative and in true mathematically, it would pay your mortgage from a little faster than a conventional mortgage if rates was flat. The problem is, at least, the way I see it, is a potentially unstable interest rate environment in the distance. I can also see some of the quote for this mortgage as misleading and it makes me scared. Throw in the fact that I have never known anyone to bring an accelerated plan and then pay it out in the prescribed short term, and it makes me to see the accelerating level as speculation. Therefore I had to believe that there is currently a fixed rate mortgage is the best way to go.

About the Author

Ed Lathrop is a successful Real Estate investor. He has developed EzCalculator, a Mortgage Calculator that calculates anything to do with mortgages, shows you how to pay off credit card debt and much more. EzCalculator includes the famous “How to Make $100,000 on Your Mortgage” calculator. There are no popups or spyware at this site. Come visit this free site at Free Mortgage Calculator!