Mortgage accelerator: what it is and how it works

What is a mortgage accelerator?

A mortgage accelerator helps you pay off your home loan sooner than scheduled. It works by applying payments in a way that reduces your loan balance faster, which means less interest over time.

Compared with traditional mortgages, accelerators focus on maximizing cash flow and reducing principal quickly. Instead of waiting for monthly payments, they often use daily interest calculations or alternative payment schedules to chip away at debt faster.

They typically make more financial sense for borrowers who consistently have more money coming in than going out. If you have a negative cash flow each month, this program would only be adding to your mortgage debt.

How a mortgage accelerator works

Mortgage accelerator programs claim to pay off your mortgage faster by changing how your income and expenses flow through your accounts.

For example, one type of mortgage accelerator is HELOC-based. With this type of accelerator, your paycheck gets deposited directly into a home equity line of credit that’s linked to your mortgage. Because the HELOC balance is applied against your mortgage, every dollar sitting in the account immediately lowers the principal you’re charged interest on.

From there, you use the HELOC like a checking account to pay your bills and everyday expenses, while income continues to flow back into the account. As long as you consistently bring in more than you spend, your balance will drop faster than it would with a standard monthly payment plan.

Also, traditional home loans typically accrue mortgage interest monthly, but with an accelerator, interest is applied every day. That means even short-term deposits, such as a paycheck sitting in the account for a week, can reduce the amount of interest that accrues.

Types of mortgage acceleration programs

There are two common types of mortgage accelerators: biweekly payment plans and HELOC-based accelerators.

Biweekly mortgage payments

A biweekly mortgage payment plan is when you make half of your monthly payment every two weeks through automatic withdrawal. Because there are 26 two-week periods in a year, you end up making 13 full payments instead of 12.

Not all lenders support biweekly mortgage payments, so check whether your servicer will process them before you enroll.

Some lenders will set this up for free, but others may try to charge you for it. You can skip the fee by creating your own biweekly schedule or by making one extra yearly payment.

HELOC accelerator

As mentioned earlier, with a HELOC accelerator, your paycheck is deposited into a home equity line of credit that’s linked to your mortgage. Because interest is calculated daily, every dollar sitting in the account temporarily reduces your outstanding balance, which means you’re charged less interest.

You then use the HELOC like a checking account to pay bills and expenses. As long as you consistently deposit more than you withdraw, your mortgage balance goes down faster than it would with standard monthly payments.

But there are risks with this strategy. HELOCs often have variable interest rates, which means your costs can rise unexpectedly, and you could end up carrying a higher interest rate than a traditional mortgage. Also, if you have negative cash flows, you’d only be adding to your mortgage debt.

» COMPARE: Top-ranked HELOC lenders

Mortgage accelerators can make financial sense if you have a steady positive cash flow, but they come with some added risks and costs compared to other options.

Alternatives to mortgage accelerators

Though mortgage accelerators can help you pay down your mortgage faster, they often come with high interest rates and fees. Here are some alternatives to try instead:

• Making extra payments: Let’s say you have a 30-year $250,000 mortgage at 6%. Your monthly payment would be about $1,500. With one extra $1,500 payment per year, you could pay off the loan around five and a half years faster and save thousands in interest.
• Refinancing: You can also refinance into a shorter loan term, such as switching from a 30-year mortgage to a 15-year. Your monthly payments will be higher, but you’ll pay off the loan much sooner and pay far less interest overall.
• Using a mortgage payoff calculator: If you haven’t already, use a mortgage payoff calculator to see how different payment schedules affect your timeline. This can help you decide whether it’s better to make small extra payments regularly, throw lump sums at your balance when possible or commit to a shorter loan term through refinancing.

Make extra payments count

Direct any additional payments toward your loan principal, not interest. Even small extra amounts lower your balance faster and cut interest costs.

» MORE: Top mortgage refinance lenders