วันอังคารที่ 19 ตุลาคม พ.ศ. 2553

Mortgage Acceleration - A Reality Check

In a time when the whole nation is deeply troubled by financial meltdown started with mortgage crisis, many desperate home owners looking for all means to save their home. Mortgage Acceleration (MA) is popping up as one of the top means.

"Pay off your mortgage in as little as 1/3 to 1/2 the time without refinancing your current loan or increasing your current payment!" Have you seen these catching head lines for MA in the newspaper or internet? I mean, who doesn't want to get house loan, this huge amount of debt, off their back in half the time this way.

We scrutinized this MA concept and reported back with our research. The essence of MA is interest arbitrage. To average Joe, this sentence doesn't ring much a bell. But this is truly how bank makes money and MA found its entire base on. However, this is a shaky base.

In our research, we carefully studied three cases using free software with numbers plugged in. This basically took the mystery out completely. Everybody can do it and everyone can study it. We made screen shots and included all these in the report.

First case is the classical Example, HELOC rate is higher, and the saving from MA is close to none or even cost money actually. Second case applies in current interest environment. HELOC rate is lower than primary home loan. From the calculation, you can save money handsomely. Number comes out about 1 or 2 thousand per year depends on your loan size. Third case applies to aggressive home owners took out much stretched loans in past few years. Do they still have any equity in their house?

If you want to cut 15 years off your payment period, you need a reality check. Only persons with one or two thousands of positive cash flow and actually applies the money into housing loans can accomplish this. If you do save 15 years off your payment period, this is not because MA either. You are putting extra money into your house every month. There are two ways you can accomplish this. You can put your money in the tradition way, sending it straight to your lender. Or, you can do it the MA way, sending it to HELOC and from time to time, transfer money from HELOC into your primary housing loan.

If you do it the tradition way, put extra cash directly into the mortgage and you can never get it back unless you refinance. In MA way, you put the money in a HELOC, most of it is available at any time. It also eliminates the need to store a large pile of rainy day fund. However, as pointed out by a user in the forum, some HELOC lender tends to reduce your line of credit without notice recently, which can cut you off emergency fund. In the end, you are the ultimate person to determine if you want to go with this.

Finally, the best part, if you can save money from MA, you can "DIY: Mortgage Acceleration". There is no need to buy expensive software if you are generally happy around computer. There is a free software listed in the web site.

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