I explained yesterday that there are three mainstream ways to pay off your mortgage early if you are disciplined enough to do it. One of the more aggressive ways to accomplish this goal is through an advanced tool called the Home Accelerator Loan. This device is not for use by people who are not familiar with investment strategies, so I rarely recommend it to potential clients. However, it can really cut some serious time and interest expense off of you mortgage.

I will repeat one concept that I shared yesterday — I am not a believer in the myth of the benefits of mortgage interest. While the government wants you to continue to have a mortgage for your entire life as evidenced by the existence of the mortgage interest credit on your taxes, I do not believe it is in your benefit to have a mortgage until the day you die. I feel it is a necessity to pay off your mortgage and you owe it to yourself and your family to pay it off as early as possible. Imagine what freeing up that monthly payment could do for your long term savings and investment opportunities.

This is a legitimate way to cut time off your mortgage and does not include any type of shell game or mortgage fraud. It has been in use in Europe and Australia for several years now, and there are two companies in the U.S. who currently offer loans of this type — CMG offers the Home Ownership Accelerator program and Macquarie’s Asset Manager program. If you want additional information on this product, please message me and let me know. We will be opening the doors at Black Diamond Mortgage by April 2012 and would be happy to point you in the right direction.

This home loan is designed specifically for those families that spend less than they make each month. I would think it would also work for those who get a base salary and then big bonuses at the end of the year or sales people who are on a base plus commission pay plan. Of course, only those families who owe less than what their home is worth could sign up for this type of program right now.

How does it work? The concept is pretty simple — you refinance your mortgage and get a new home loan. The new loan works like a Home Equity Line of Credit (HELOC), so you are able to draw down on the credit line as needed. When you are paid you put your entire paycheck into this new account, which significantly decreases the amount of principal on the loan. You also treat the account like your regular bank account, so you pay all of your bills out of this account, using the online bill pay, the debit cards, and the ATM cards. The benefit is the money from your paycheck now helps you decrease the amount of interest you are paying on your home loan and can drastically cut down the term, or length of your home loan.

The devil is in the details. While the concept of the home acceleration loans is simple, the execution of the program is not simple and does take some attention to detail. You are required to refinance your home using one of their home equity loan products. You will then set up a bank account with the company that you will use as your account that you pay your bills from. So the biggest challenge so far would be just the same as if you were changing banks.

The biggest challenge with this type of approach would be discipline. If your home now has a HELOC and you are able to draw against this account anytime you want, what would stop you from drawing against that amount at anytime? Truth be told, it would only be you. Let me set up a scenario — you have worked to pay down that loan and in a moment of weakness, you decide you REALLY need that new Mastercraft X80 and, wait, don’t you have $80,000 available on your HELOC? Guess what? You just blew months if not years of discipline for an emotional purchase. Then the principal on your loan shoots back up and you are right back where you started.

While I think the home acceleration loan is a great way to pay your mortgage off early, there are very few of us who would be disciplined enough to make significant progress on their loan when in essence you are selecting your own monthly payment. I am sure the company recommends a minimum payment each month, but you will find yourself making little if any progress in reducing your principal if you make the recommended payment. Then once you have made headway on your loan, we all have those moments of weakness where a product or service is offered that we find “too good to say no to.”

The Bottom Line: Get this type of loan if you aggressively manage your finances, especially your expenses and you rarely deviate from your budget, even in the most tempting of circumstances. Pass if you fall into any other type of financial category.