If you are dreaming of building your own home but feel that you are unable to afford it, then a self-build Mortgage accelerator loan may be just what you need.
A Mortgage accelerator loan is a blend of a home equity loan and a checking account. Where the Borrowers salary is deposited straight into the mortgage account, whereby the lender takes out the money which is put towards the mortgage balance. As withdrawals are made out of the account during the working month, the mortgage will increase by that amount. The remaining amount is applied to the balance of the mortgage at the end of the month to repay the loan.
A Mortgage accelerator loan is widely used in Australia, where one in three mortgages is a mortgage accelerator loan.
A self-build mortgage accelerator loan differs from a traditional mortgage in that homebuyers receive a variable-rate home equity line of credit (HELOC) instead of a fixed rate loan. Although some lenders offer the accelerator to re-mortgage existing homes, they tend to be aimed at first time buyers.
Here are the list of pros and cons to use a guide, to help you decide on whether these types of loans are suitable for you.
- The main benefit of this type of loan is that when a borrower’s salary is deposited into the account, it reduces the average monthly balance of the mortgage, which in turn reduces the amount of interest charged.
- This can be useful if you have an interest applied to your checking account. Furthermore, the amount left in the account at the end of the month it may reduce the balance of the mortgage faster than it would take under a traditional mortgage, which can result in the overall cost of the mortgage interest.
- If borrowers that have a reduction in their salary or more money going out than in, they will increase their mortgage cost as well as increase the interest overall.
- They tend to have an initial higher interest rate than a traditional mortgage.
- Are variable, which could mean that your payments will increase as interest rates rise, potentially further increasing your outgoings and prolonging your mortgage term.