SANTA CRUZ (July 22, 2007) - A new loan program introduced in the United States two years ago is revolutionizing the way home owners are paying off their mortgages. It combines the flexibility of a Home Equity Line of Credit with the idle cash that sits in your checking account to pay off your loan sooner without changing your spending habits. The loan is called the “Home Ownership Accelerator” (HOA).

As we all know, you can pay off your mortgage faster and save tens of thousands of dollars by simply increasing your payment each month with a conventional mortgage. However, that requires discipline and a tightening of your personal budget. Also on a conventional loan, once you have made extra payments your money is locked up permanently unless you refinance.

By using the cash that sits in your checking account the HOA will automatically lower your principal due on your mortgage. Each time your paycheck is direct-deposited into your account, it makes a large impact on your loan balance. On the other hand, when you want money back, simply write a check. This 30 year loan is a home equity line of credit that allows unlimited payment and withdrawal privileges.

This innovative product may be the only loan that you will ever need for your home and here’s how it works. It takes the place of a first mortgage and a Home Equity Line of Credit and must be in first position which means that if you are refinancing you will use it to pay off any existing mortgages that you now have. If you are using the HOA to buy a home it will effectively become both your mortgage and a Line of Credit.

To maximize the effectiveness of this loan program you will set up a new checking account and deposit your paychecks into this account each month. Each dollar you put into your checking account will immediately reduce your loan balance by one dollar. Since interest on your mortgage is calculated on a daily basis, every dollar used to reduce your principal will help you pay off your loan sooner. Alternatively, as you write checks to pay your bills each month, the loan balance will increase. Your mortgage balance will fluctuate as you make deposits and withdrawals from your checking account. The more money you have left over at the end of the month after your bills are paid, the faster your loan balance will decrease and the faster you will accelerate the pay off of your mortgage.

Let’s look at a home worth $800,000 that has a $400,000 mortgage. Refinancing with a new $400,000 HOA loan will pay off the existing debt; however, if you want to have a $100,000 line of credit available for repairs, vacations or emergencies, refinance with a $500,000 HOA loan. This will pay off the existing $400,000 mortgage plus give you access to another $100,000. You will only pay interest on the current balance owed.

Income-wise in this example, let’s say you take home $8,000 per month and typically spend $6,800 of it each month for your mortgage, food, utilities, entertainment, etc. At the first of the month you deposit your $8,000 paycheck into your new HOA checking account and immediately your $400,000 loan balance drops to $392,000. As you write checks for food, utilities, credit cards, etc. your loan balance will gradually increase. By the end of the month you may have only been paying interest on an average daily balance of, say, $396,000 because the money in your checking account was being used to reduce your loan balance each day.

This loan simply puts the money that you have sitting around in your checking account (earning only 1 or 2 percent!) to work paying down your mortgage. At the same time, this loan gives you the control to access your money anytime you want it.

The HOA is for those borrowers who are able to save money each month, who have good credit and solid income. It is ideal for self employed borrowers, investors and high income earners; it can also be used as a reverse mortgage.

The Home Ownership Accelerator is based on an adjustable index; given the above scenario and based on stable interest rates, it will pay this 30 year loan off in 17 years without changing the borrower’s spending habits. When compared with a traditional 30 year fixed rate, the savings in interest will amount to tens of thousands of dollars! To find out more, contact a mortgage professional who has been certified to provide the HOA financing or go to www.homeownershipaccelerator.net and find out for yourself.

This column is written every Sunday by Peter Boutell, Certified Mortgage Planner and a principal at Santa Cruz Home Finance. You may reach him at (831) 425-1250 or email him at Peter@SantaCruzHomeFinance.com.