Mortgage Accerator Options
Over a dozen years ago Austrailians began using accelerated mortgages and over the past couple years firms such as CMG and Macquarie Bank have been marketing versions of it in the U.S. I was actually introduced to these products and intended to market them before the mortgage meltdown hit. CMG’s product is available in more states than Macquarie, so that is the one I was primarily focused on. The terms of the loan however keep getting worse and worse as the credit crunch affects GMAC, who buys the loans from CMG. As GMAC’s cost of funding rises, they have continued to raise margin rates on their loans with standard margin rising from 2.25% to 3.25% in the past two months.
The Primary Benefit of the CMG and Macquarie loans is the automation.
Once you set up the loan, you auto deposit your paychecks into it and your money begins working for you. Whatever you don’t spend in any given month continues to work against your loan balance, so there is no need to transfer money to or from your loan.
The Primary Drawbacks Are the Cost and the Entire Loan Balance Becomes A Variable Rate.
The CMG loan is based on the 1 Month Libor Rate plus the margin rate. The Standard margin on the loan has gone from 2.25 to 3.25, so based on the current Libor Rate of 2.50% the standard rate on the loan would be 5.75% which is above about 1.25% above a 2nd Position HELOC from JP Morgan Chase which currently stands at 4.49% with no closing costs ( for good credit customers ). If you want to buy your rate down to that level in the CMG product, it will cost you a couple more points at least so you end up with closing costs north of 5%. That’s why in my Free Mortgage Accelerator Course I layout how to use a second position Home Equity Line Of Credit along with your existing mortgage instead of refinancing into a 1st position HELOC.
In addition to the rate issue ( which is a secondary consideration ) the primary drawback of a first position Home Equity Line Of Credit is the variable interest rate. Despite was mortgage brokers might tell you, very few consumers will choose to put their largest debt on a variable rate when they can get the same Mortgage Acceleration Benefits using a 2nd position HELOC.