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The Accelerated Home Loan is an innovative new mortgage product puts borrowers in control of how rapidly they pay off their loan. It is based on loan programs that have been used in Australia and England since the early 1990s. In these countries, there is no tax deduction for mortgage interest so homeowners are motivated to pay off their loans as quickly as possible. The premise for the Accelerated Home Loan is the same - to pay off or pay down the loan as quickly as possible. However, the rules for mortgage interest deductions are still the same for home purchases and refinance loans.
Traditional closed-in loans require borrowers to first pay interest and then pay principle. Accelerated Home Loan payments are just the opposite and borrowers first pay principle and then interest resulting in a majority of the borrower's money going towards principle instead of interest. This results in the borrower paying much less interest over the life of this loan than compared to traditional loans. Instead of paying a predetermined amount of interest no matter what the balance owing is, on the Accelerated Home Loan as principle goes down the amount of interest owed also goes down.
The Accelerated Home Loan is a single line of credit taken against the property replacing all current mortgages. The line of credit is due in 30 years - during the first ten years the borrower can draw against the entire line of credit and in the final 20 years the credit line is reduced by 1/240th a month so that at the end of 30 years the line of credit is at $0.
Borrowers deposit their paychecks directly into the new line of credit account and they write all of their expenses out of this account as well. While they are not using their money, it reduces their daily loan balance, on which interest is computed. Over the life of the loan, this can save borrowers tens or hundreds of thousands of dollars in interest compared to traditional loans. Interest saved equals more money for principal so borrowers can build equity faster and own their home sooner - without changing their monthly budget. Remember in the Accelerated Home Loan deposits are principle payments - so borrowers who have a lot of income compared to expenses will be able to rapidly drive down their loan balance.
Homeowners can access their funds just like they would with a checking account, using the unlimited checks, ATM/Visa point-of-sale card, and free online bill pay that come with the account. While the borrowers' funds are not being used, they simply keep the principal balance lower, thereby saving interest. It essentially creates a higher effective return on their funds.
Borrowers can also add money from other low interest accounts to the Accelerated Home Loan account to drive the principle balance down even faster. Or if a borrower has an unexpected expense, or is out-of-work for a few months the homeowner doesn't have to worry about having to "make" a mortgage payment as long as the borrower's loan balance remains below the credit limit.
Because this loan is driven by the borrowers' income, it is directed to borrowers with positive cash flow. It is a full document loan and to qualify borrowers must have a FICO score of at least 700 and a debt to income of 45% or less. Loan to value limitations are 75% on single family homes and 60% on condominiums. Loan amounts range from $100,000 to $729,750. The Accelerated Home Loan is tied to the 1 Month Libor index, margins range from 1.50 to 2.50% and the lifetime cap is 5% over the initial start rate. This loan can be used for owner occupied properties or second homes.
Please visit www.ahl-usa.com to watch the 5-minute movie and take a test drive on the interactive Accelerated Home Loan simulator to see how much you can save.
Karen E. Sasso
