What is a Mortgage Accelerator?

No, it doesn't involve buying little blue pills for your home loan. Mortgage accelerator loans are popular in Australia and the UK and are making their way to the US. Homeowners use these tools to retire their mortgages early. But what are they?

Americans typically have a few options for paying their mortgage off at a faster clip than the traditional 30 year long trudge to getting free and clear.

The most typical is the 15 year mortgage, which usually comes with a lower rate, higher payment, and a lot less interest over the life of the loan. The disadvantage is the commitment to the higher payment year after year. Other borrowers opt to pay their mortgage bi-weekly or make an extra payment each year.

Mortgage acceleration is a different animal. It's a scheme in which the homeowners deposit their entire paychecks into an account that also holds their mortgage. Anything left over each month after expenses is applied to the mortgage. Of course, anyone do this without a special account--just apply monthly leftover money towards the principal.

The chief advantage of this product is that while your paycheck is sitting in the mortgage account, your loan balance is reduced by that much and so you incur less interest expense. So it's like getting paid your mortgage loan rate for your extra money instead of the 1% your bank will give you for your checking account funds. And, unlike other accelerated plans, this scheme allows you to pull money back out, adding a margin of safety.

There are many ways to pay your mortgage off sooner. All require some degree of commitment and discipline to be successful.

Liz Freeman has more than a decade of mortgage lending experience. She writes about mortgage and finance issues and is a regular contributor to Mortgage News Daily and other publications.