The Homeownership Accelerator
It’s been said that a “picture is worth a thousand words” and when it comes to explaining financial concepts it is often even more the case. Many of us, myself included, are visual learners—we comprehend things better through depictions than through the spoken or printed word. For this reason I’d like to direct you to the following website:
There, you may watch a 5-minute movie that explains, perhaps, better than I might what the Home Ownership Accelerator is and how it works. In addition, there is an interactive simulator that allows one to test-drive the loan. There are also two Q & A sections that comprise the Top 5 Questions and a Frequently Asked Questions (FAQs) format. For those of you who are more print-oriented, I’ll soldier on with my explanation.
THE HOME OWNERSHIP ACCELERATOR (HOA) COMBINES THE BEST FEATURES OF AN INTEREST-BEARING CHECKING ACCOUNT WITH A HOME EQUITY LINE OF CREDIT AND A BI-WEEKLY PROGRAM, WITH NONE OF THE DOWNSIDES.
With a conventional mortgage, you write a check to make your mortgage payment and the interest charged on the outstanding balance is paid first and what’s left over is applied to reducing your principal mortgage balance.
With the HOA the process is reversed. You deposit your entire paycheck or checks (if you are self-employed) into your HOA account, instead of your checking account, thereby dramatically reducing your principal balance. Your HOA account functions just like a regular bank account. For your everyday expenses, you have unlimited free checking, and ATM/Visa point of sale card (credit/debit), and electronic (bill-pay) access to your funds. Until you need the money, it stays in your HOA account, keeping your balance lower, saving 5 to 7% in interest costs, versus earning 1 to 2% or less in your old checking account. In addition, because your principal has been reduced, less mortgage interest accrues and the interest bearing portion of the checking account is computed on your residual daily balance which further serves to offset the accrual of additional mortgage interest. Thus, the payoff time is accelerated by about 50%. The impact is so great that it offsets the effects of compound interest were current interest rates to double!
Also, if you have liquid accounts (such as a savings account, short-term CD or checking account) that are not earning 5-8% (the interest rate range of most mortgages), it’s an outstanding place to park these funds because they will further accelerate the pay-off of your principal balance. Another major benefit is that while you’re lowering you loan balance you still have access to the original amount of your credit line. The only thing you have to lose is years off your mortgage.
If this sounds innovative, it is. The program was originally developed of necessity because, unlike America, the interest on home equity loans is not tax-deductible in either the U.K. or Australia. It’s been used since 1990 in Great Britain and Australia. In fact one out of every 3 homes purchased in Britain utilizes this type of program and 100 billion dollars worth of real estate is financed this way in Australia. The program is backed by GMAC with assets of 5 billion dollars.
As good as this is, it’s not for everyone. There are some provisos. To qualify one must have a minimum FICO score of 700. This program applies to only primary residences and no second homes nor investor properties. It is a first lien position instrument with the maximum loan amount being $2,500,000 and the max LTV is 90%. The program is good for both purchases for refinances. The borrower’s Debt To Income (DTI) may not exceed 45%. Moreover, this program is only available as a full-doc loan program, no stated incomes. Further, it does require direct deposit of one’s paycheck.
It’s ideal for people whose income might vary such as small business owners, or people who receive bonuses or commissions or those who have a substantial positive cash flow. There is no change required in one’s spending habits.
I am one of a handful of mortgage brokers that is certified to offer them.
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