See: Mortgage.
We’d love to add some flair to our home mortgage, and also possibly pay it off a lot faster than 30 years, which is why we’re all about the mortgage accelerator loan.
Imagine that a checking account and a home equity loan had a baby. We take out a loan for the amount we need, just as we do with a normal mortgage. But instead of having fixed payments every month that we have to pay out of our checking account, it works a little differently. Our paychecks go directly into the mortgage account, and then we pay our other bills out of that. At the end of the month, whatever's leftover goes toward the mortgage.
Pretty ingenious, eh? At least...it is if we’re making more money than we’re spending. If we’re not, then we risk not paying enough toward the mortgage every month, and eventually taking a lot longer than 30 years to pay off the loan. Also, though mortgage accelerators are crazy common in places like Australia and the UK (and they’re gaining popularity here as well), we need to take a careful look at the interest rate before we get too excited. Since it's such a flexible type of loan, the interest rates can be a lot higher than they would be on a standard 30-year mortgage. And if we’re not in a position to put a nice chunk of change toward the loan amount every month, those interest charges could add up really fast.
Related or Semi-related Video
Finance: What is a second mortgage?4 Views
Finance allah shmoop What is a second mortgage Okay you
know what a first mortgages it's otherwise cleverly named what
is called it is called oh yeah Mortgage it's Just
a loan on a house You paid four hundred grand
for this baby Hundred grand down two hundred fifty grand
in a first mortgage And they're still fifty grand You
owe well where's that fifty large coming from the bank
wouldn't loan you any more on a first mortgage that
was costing you six percent a year Tio you know
to rent that money So you had to get a
second mortgage which should things go awry and you become
a statistic Well that's it's fully behind the first mortgage
in the priority stack of payback So in a bankruptcy
situation the first mortgage first what's called a first mortgage
get it fully paid along with any fees associated with
it and back interest accrued and any other things that
are associated with that first mortgage it stands in line
first in priority Then any cash leftover gets attributed to
that second mortgage So not surprisingly second mortgage money costs
a lot more to rent then first mortgage money because
the risk of non payment in a bad situation is
meaningful E higher especially when the borrowed does this for 00:01:25.136 --> [endTime] a living
Up Next
What is a mortgage? A mortgage is a loan on property. Obviously not many individuals, or companies for that matter, can or want to pay cash for the...
What is an Adjustable-Rate Mortgage (ARM)? An adjustable-rate mortgage is a mortgage that has a changing interest rate. Whatever it changes to is b...
An interest-only mortgage is a mortgage on which you only pay the rent on money borrowed, rather than on the principal.
With a reverse mortgage, payments go in the opposite direction of a normal mortgage, where you pledge your home as an asset, and receive $ each month.