Q. Dear Dr. Don,
I recently learned of mortgage equity acceleration programs whereby you can pay off your 30-year mortgage in five to seven years. It seems too good to be true. What do you think?
-- Mary Motivated
A. Dear Mary,
I always hesitate before answering a reader's question on this topic because afterward, I get a lot of e-mails from the purveyors of these mortgages saying I just don't get it.
What I really don't get is the hype behind this product. The savings come about because every penny you don't spend goes toward paying down the mortgage. Then, the savings in interest expense is compared to a conventional 30-year fixed-rate mortgage where the homeowner never makes an additional principal payment.
It's a miracle! Just look at the difference in interest savings.
If you don't buy into the interest savings argument, you're asked to consider the liquidity argument. You can tap your equity at any time, versus being unable to tap equity with a conventional mortgage. Of course, if you tap your equity, you're not paying down the mortgage. Homeowners with a conventional mortgage have the ability to use a home equity line of credit, or HELOC, act as a financial backstop, too.
Two earlier columns discuss equity accelerator mortgages: "Try DIY method of paying down mortgage" and "Mortgage software fails to impress."
I don't see the need to use an equity accelerator mortgage to pay down your loan faster. If you have extra money in your household budget at the end of each month, consider making an additional principal payment on your existing mortgage.
