Mortgage Acceleration Programs
- Just a few dollars and cents can spell thousands in mortgage interest savings.coins image by Petr Gnuskin from Fotolia.com
The goal of a mortgage acceleration plan is to reduce the total cost of mortgage interest to the borrower. There are several strategies that a consumer can employ on his own to reduce a principal balance, but an official mortgage acceleration plan mandates a monthly plan. - A self-created mortgage acceleration plan takes strong financial discipline. To do this, borrowers first need to develop a realistic budget based on monthly income. Most borrowers will track expenses for a month and look for areas to cut back (usually entertainment and eating out expenses). Then the borrowers will take the disposable income usually used for other things and instead apply this additional income to the principal mortgage balance each month. This requires a strict adherence to a budget. Borrowers must also be sure to contact their mortgage providers when making additional principal payments to ensure the money is directed specifically at principal reduction.
- A bi-weekly payment plan reduces the total interest on a mortgage. This process reduces a principal balance more than standard payments but takes longer than other acceleration programs. In this scheme, borrowers make a half-mortgage payment every 2 weeks. In essence, 26 half payments (or 13 full payments) are made each year against the mortgage--resulting in one extra month of interest payments. The pain of the extra dollar amount is minimal as it is only a small percentage over the standard monthly payment. However, when carried out over a full 20- or 30-year mortgage, the interest savings can be substantial.
- Some U.S. banks and finance companies offer these plans to their mortgage customers. This scheme requires the borrower to deposit her paycheck each pay period into a special checking account. At the end of the month, when the mortgage payment is due, the lender automatically debits this account the full standard payment as well as any remaining balance on the account. As such, any disposable income left in the account is applied to principal. Depending on the month, this can be a large or small amount. It's best to review your budget prior to accepting this plan.
