Many people believe that the creation of innovative loan products has enabled Buyers to afford the high home prices we have in California. In fact, many believe that the creation of these products has helped fuel the dramatic increases in home prices during recent years. These changes include variable rate loans, the creation of 3/1, 5/1, 7/1 and 10/1 loans (loans are fixed for a period of years represented by the first number, and then can adjust each year until it reaches a cap). Interest only loans which require that the homeowner only pay interst for the first 5 years and loans which amortize over 40 years are examples of recent product innovations. And earlier this week, I heard there may be a new product which has a fifty year amortization. Fifty years!
On Wednesday evening, I went to a seminar about an innovative new product that will enable many to pay off their loans in less than 30 years without making any changes to their budgets, monthly payments or habits. This mortgage operates like a hybrid checking account blended with a line of credit within your mortgage. Because of its structure, it will enable many to pay off their loans in a shorter period of time. I used their simulator, and it appears that my mortgage would be paid off in just under 7 years (v. the 27 years I have left on my current loan).
Paychecks are deposited into your mortgage account, and you pay bills (with free checks or online banking) out of this account. The interest you owe is calculated on a daily basis, so if you have extra money parked in this account, and you pay the same amount each month, your loan will be paid faster. This works for many people because they extra money that typically sits in their checking account earning little interest is now sitting in their mortgage account, reducing the amount of money they owe. The product also operates like a line of credit, and you can write checks against the equity in your home, and this all happens in the same product.
I'm intrigued about this product. Check out the website of the Home Ownership Accelerator. I can also introduce you to the mortgage broker who introduced me to this product and is making these loans. I am going to check this out...
Ok, here's the disclaimer: I am not an expert in this interesting product, nor am I offering any advice. Please consult with the appropriate tax, accounting, financial planning, mortgage and legal experts in your life. They can offer advice and guidance.