This home ownership accelerator program was brought to the U.S. in the early 2000’s from Australia.  Modeled after what is called an all in one loan, or an offset loan, it works to use your assets and income to reduce the amount of interest you pay on your mortgage.  By reducing the amount of interest you pay, this home ownership accelerator loan can allow a borrower to pay their home off earlier than a conventional 30 year fixed mortgage would allow.

The foundation of the program lies in it’s structure.  The loan is basically a line of credit, secured by your home, that becomes your financial base.  You use this line of credit as your checking account, paying bills and expenses and depositing your paycheck into it.  It has the same conveniences as a typical checking account.  You get a check book to write checks from it, an ATM card to use and online banking services.

By depositing your paycheck directly into the account, you are reducing the principal balance of the loan.  Your interest is figured on a daily basis, so every day the money is in that account, you are saving on interest due.  Even if you write a check on day 15, you still get half a month with a reduced principal balance in your interest calculation.

This loan is not a loan for everyone.  If you live paycheck to paycheck at a W-2 job, this is probably not the right loan for you.  Likewise if you have a low credit score.  This loan works best for people with a positive cash-flow expectation.

A good candidate would be a self employed borrower, or someone with a commission based job, or even a salaried type job, who expects to save at least 10% of their average monthly income per month.  The larger the deposits, the more money that runs through this account, the better.  For a better illustration, let’s look at some numbers.   If you deposit say $15,000 on the first of the month, and wrote checks totaling $10,000 on the 12th, you would have reduced your daily principal balance by $15,000 for the first week and a half of the month.  Make those numbers larger, and you can see how this could cut down on interest due in a big way, even if you spend what you put in.

The downside to this loan comes when you are not making more than you are spending.  You use the loan as your checking account, and it is set up as a line of credit.  That gives the potential for borrowers to end up paying for their groceries over a 30 year period.  If you are spending more than what you are saving, well that’s never a good thing to be doing in any financial situation.  This one is no different.

For a well qualified borrower, this loan is a pretty good option to look into.  It is a unique product, and you do need to be well qualified.  A mid fico score of 680+ is needed, and you will need to have some equity in your home.  These loans cap out in the 75-80% loan to value range. 

If you would like more information, or would like to look into obtaining one of these accelerator loans, please feel free to contact me today.