How To Pay Off a Mortgage with a Mortgage
Yes, you read the title right. Here’s what you’re going to start hearing more about: A mortgage called the Homeownership Accelerator. Its basic construction is an equity line at 75% of the home’s value that also functions like a checking account. The interest owed is calculated daily. The concept is that if you put your money that is “sitting around” into this account, put your paycheck into this account, leave your balance as low as you can through the month, pay your bills as you need to, then you will ultimately pay less on the loan over time and as a result, pay off the loan faster. Check it out.
The good, the bad, the ugly, and my directions for use
The good: This is a great product for those who have 25% equity in their homes, have positive cash-flow annually if not monthly, and are committed to paying off their mortgage aggressively. I find it a more financially sound strategy than taking out a standard 30-year fixed-rate loan and making extra principal payments. The 30-year fixed-rate loan is an extremely expensive loan over time. The Homeownership Accelerator is far less expensive and serves the client rather than the lender. The product is also kept with an investor. There are no Fannie/Freddie underwriting guidelines in play.
The bad: The one aspect that I don’t like is that I believe that once you’ve paid off the mortgage to a particular level, it is arguable by the IRS that the interest is no longer deductible for a portion of the loan balance. Now, there are relatively so few people using this loan that the IRS is unlikely to waste its time trying to figure out what is/not deductible. You’re probably safe.
The ugly: The only thing that scares me about this loan is that it’s an equity line and lenders are notorious for reducing or closing down equity lines these days. In my conversations with the folks at HOA, the chances of the equity line being closed or reduced are slim because the underwriting is strict and it’s only issuing loans where it knows its collateral is sound. You’re probably safe.
Directions for use: Take a look at the videos. Talk to your mortgage professional. Talk to your financial advisor. You must have 25% equity, good credit, positive cash-flow, and a willingness to try something “new” (it’s new here, but my Australian counterparts have 30% of their clients in this loan). Use the loan to capture low daily interest calculations. Do not change your spending habits. Take the savings that you do reap and make additional investments. Over time, your loan balance will go down faster, your investments will increase faster, and you will be in a “debt-free” place (as you have the ability to pay off the loan with assets at a moment’s decision) sooner.