Mortgage Accelerator

AAA

DEFINITION of 'Mortgage Accelerator'

A type of mortgage loan program popular in the United Kingdom and Australia that resembles the combination of a home equity loan and a checking account. Borrowers' paychecks are deposited directly into the mortgage account and the mortgage balance is reduced by that amount, then as checks are written against the account during the month, the mortgage balance rises. Any amount deposited in the account that is not withdrawn through the check writing process is applied to the balance of the mortgage at the end of the month as repayment of principal.

INVESTOPEDIA EXPLAINS 'Mortgage Accelerator'

The potential benefits of the mortgage accelerator program are that when the paycheck is deposited into the account, it reduces the average monthly outstanding principal balance of the mortgage on which interest is charged (interest accrues daily under the plan), even if that principal balance at the end of the month is equal to what it was at the beginning of the month. Additionally, the amount of the paycheck that remains in the account at the end of the month might be larger than what would be paid toward the principal balance of the mortgage under a traditional amortizing mortgage. When this is the case, principal is retired early, reducing the entire term of the mortgage, resulting in interest savings. The potential drawbacks of the mortgage accelerator loan program are that it might carry a higher interest rate than more traditional mortgages and that a borrower can accomplish the same early retirement of principal as described above, thereby shortening the life of the mortgage and realizing interest savings by making unscheduled principal payments on a traditional amortizing mortgage.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Release Clause

    A release clause is a mortgage term that refers to a provision ...
  3. Checking Account

    A transactional deposit account held at a financial institution ...
  4. Home Equity Line Of Credit - HELOC

    A line of credit extended to a homeowner that uses the borrower's ...
  5. CMG Plan

    A mortgage plan in which a borrower's mortgage is structured ...
  6. Home-Equity Loan

    A consumer loan secured by a second mortgage, allowing home owners ...
RELATED FAQS
  1. Is the banking sector subject to any seasonal trends?

    The banking industry, including retail and investment banks, is subject to seasonal trends. Seasonality is most commonly ... Read Full Answer >>
  2. What is the difference between an Equity REIT and a Mortgage REIT?

    There are several types of real estate investments trusts (REITS) that investors can purchase, including equity REITS and ... Read Full Answer >>
  3. Can small investors buy collateralized mortgage obligations (CMOs)?

    Collateralized mortgage obligations (CMOs), which are pools of mortgage-backed securities (MBS), are available to smaller ... Read Full Answer >>
  4. What is the difference between an option-adjusted spread and a Z-spread in reference ...

    Unlike the Z-spread calculation, the option-adjusted spread takes into account how the embedded option in a bond can change ... Read Full Answer >>
  5. What are some historical examples of debt securitization?

    The first debt securities were probably sovereign debt assets that were transferred from the British government to mercantilist ... Read Full Answer >>
  6. What price-to-book ratio is considered average in the chemicals sector?

    You can use Microsoft Excel to calculate the loan-to-value ratio if you have the mortgage amount and appraised value of a ... Read Full Answer >>
Related Articles
  1. Economics

    How Interest Rates Affect The Housing Market

    Understand how rate changes can affect home prices, and learn how you can keep up.
  2. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  3. Options & Futures

    Make A Risk-Based Mortgage Decision

    Find out how to choose which mortgage style is right for you.
  4. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  5. Home & Auto

    What Are The Tax Advantages Of Buying A Home?

    Don't forget these deductions and credits that homeowners can use to reduce their tax bill.
  6. Credit & Loans

    How To Finance Foreign Real Estate

    If you don't pay cash, financing real estate abroad is likely to cost more than at home. Watch for local laws and be sure your rights are protected.
  7. Credit & Loans

    Save? (Or Prepay Your Mortgage Or Student Loan?)

    With low-interest rate loans, you might be better off paying just your monthly minimum and investing whatever extra funds you have.
  8. Credit & Loans

    Not a U.S. Citizen? A Home Loan is Still Possible

    Many banks and mortgage companies offer conventional and FHA home loans to non-U.S. citizens, if they can verify their work history and financial status.
  9. Credit & Loans

    Is it Worth Saving Up for a Bigger Down Payment?

    There are numerous low-down-payment mortgage options out there, but sometimes it makes sense to build up your savings so you can borrow less.
  10. Credit & Loans

    Is A 30-Year Mortgage Really Best?

    It's the most popular choice, but home buyers with 30-year mortgages may be paying more to finance their home than they need to.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center