SAN FRANCISCO — A mortgage alternative is gaining traction.
In recent years, such companies as CMG Financial Services Inc. and Macquarie Mortgages USA Inc. have begun offering mortgage accelerator loan products that allow borrowers to hasten their loan payoff schedule by reducing the amount of interest paid on their loans.
SAN FRANCISCO — A mortgage alternative is gaining traction.
In recent years, such companies as CMG Financial Services Inc. and Macquarie Mortgages USA Inc. have begun offering mortgage accelerator loan products that allow borrowers to hasten their loan payoff schedule by reducing the amount of interest paid on their loans.
Such products are different from biweekly mortgage loans, in which interest and principal payments are made every half month, thereby resulting in earlier loan retirement.
With a mortgage accelerator loan, borrowers deposit their paycheck into a home equity line of credit used to finance the cost of their home. That reduces the principal used to calculate daily interest charges on the loan.
Other expenses also may be funded by the home equity line of credit.
Borrowers benefit because any unspent cash is applied daily to the principal on the loan.
In order for the program to be most effective, borrowers must spend less than they take in.
CMG of San Ramon, Calif., launched its offering, which is called the Home Ownership Accelerator loan, last year. So far, the company stated, it has financed more than $1 billion in such loans.
General Motors Acceptance Corp. of Detroit buys all the HOA loans from CMG and services them. There are 3,000 mortgage brokers in 37 states that are certified by CMG to sell such loans.
“It’s definitely mind-blowingly revolutionary,” said Hal Denton, vice president of lending services at Great Western Lending Services, a division of Great Western Home and Land Inc. of Jamestown, Calif.
Although there are some clear advantages to HOAs, consumers need to consider some caveats, according to Thomas Orecchio, president of Greenbaum & Orecchio Inc. of Old Tappan, N.J.
Adjustable rates
Besides the mortgage origination and appraisal fees, HOAs — and similar products — come with adjustable interest rates.
“I’m not comfortable taking on that risk for clients,” said Mr. Orecchio, whose firm oversees $400 million.
CMG tries to allay that fear by offering to convert the loan into a conventional fixed-rate mortgage free of charge for anyone who gets cold feet, said Douglas Nesbit, the company’s national sales and marketing director.
Although that makes the product more appealing, Thomas “Tif” Joyce, principal of Joyce Financial Management of Sebastopol, Calif., is withholding his endorsement of HOAs — for now.
“I’m asking myself, would I do this for myself and my mom?” before recommending it to clients, said Mr. Joyce, whose firm oversees $80 million in assets.
One benefit of a mortgage accelerator loan is that it can be used to finance a home during a client’s working years and as a reverse-mortgage alternative after retirement, he said.
“This might be superior to a reverse mortgage because it doesn’t have the same high fees,” Mr. Joyce said.
Six months ago, Jacksonville, Fla.-based Macquarie Mortgages USA also added a check writing function to its mortgage accelerator loan product, which is called Equity Manager, to compete more effectively against CMG’s HOA, said Michael Barrett, head of mortgages for the company.
Recently, Macquarie has begun focusing its sales efforts on financial planners, he said.
“We’re reducing our exposure to mortgage brokers, and we’re expanding our use of financial planners, because you need some [holistic] advice [applied]” to sell this complex product effectively, Mr. Barrett said.
