Jennifer Bradley Franklin, Bankrate.com
For a wide range of reasons, mortgage acceleration or accelerator loans are “a program that helps homeowners repay mortgage balances much faster, saves a significant amount of payment periods over several years, and cuts down years.”
“When you use the Mortgage Accelerator Program, you pay a little extra to the mortgage principal each month,” Bullara says.
Please note: The mortgage acceleration program is not the same as the accelerator clause in a loan agreement. More details are below.
What are the acceleration clauses?
An acceleration clause, also known as a “demand function,” is a provision in a mortgage agreement that allows lenders to request a full repayment of the loan. You can check if your mortgage includes this provision on page 4 of the closing disclosure. The terms and conditions on which a clause can be imposed when a loan is made are usually listed in the Mortgage Notes document.
Types of mortgage accelerator programs
There are fewer formal mortgage accelerator loan programs (meaning those who apply and pay) and formalized strategies that can be used to obtain similar payoff results over the lifetime of your mortgage. Below is an overview of the two main programs:
HELOC ACCELERATOR: HELOC ACCELERATOR combines bank accounts with mortgage and HELOC or home equity credit lines. With this type of program, you will be depositing your salary into HELOC and using that line of credit to pay your mortgage. They then raise funds from the line to pay for other expenses such as car payments and utilities. The remaining cash then goes towards the mortgage. Every two-weekly mortgage payment accelerator: In a biweekly mortgage payment accelerator setup, an automated withdrawal accelerates mortgage payments every two weeks. The Accelerator Loan Provider pays a loan every two weeks or once a month.
Pros and cons of mortgage accelerator loans
While the benefits may sound attractive, there are several drawbacks to mortgage accelerator programs. If you are considering any of these loans, first weigh the pros and cons.
The advantages of accelerating mortgages
You can quickly repay your mortgage.
Cons of accelerated mortgages
Interest rates can be higher than traditional mortgages.
Alternatives to the Mortgage Accelerator Program
When you reach it, the best way to accelerate your mortgage return is to simply pay as quickly as possible. Some proven strategies include:
Add a little extra money to the principal every month. We offer additional mortgage payments each year. Every two weeks, we schedule a semi-malt payment, also known as biweekly payments. With a 26 two-week period per year, it is effectively one additional mortgage payment each year.
No matter what alternatives you use, always notify your mortgage lender or servecer to ensure that these additional payments are headed to the principal, rather than the interest on the loan.
If you’re in doubt, it’s wise to sit down with a trusted financial advisor to determine if the early mortgage reward aligns with your goals.
What Borrowers Should Know About Today’s Mortgage Accelerator Loans
Mortgage accelerator loans are not for everyone. For borrowers less than discipline, the appeal of having a home equity line credit line actually allows them to live beyond their means, allowing them to add a large interest liability over the years.
“Accelerator mortgages tend to be particularly valuable to taxpayers with higher or additional tax rates, and also to people with large savings that don’t rely on favorable benefits to fund their daily lives,” says Blara. “The main advantage for high-end taxpayers is that they don’t have to pay taxes on savings interest. This type of loan is better for high-net borrowers who don’t live on tight budgets each month.”
Furthermore, mortgage accelerator loans are not necessarily a wise financial choice, as they have higher interest rates and fees than other mortgage types.
“If you seem to pay more than you save, it may be worth considering a more basic mortgage with lower fees and no charges,” Bullara says.
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