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What is an accelerated mortgage payoff?

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An accelerated mortgage payoff is a payment procedure that uses the equity line on a home to help the owner pay off the mortgage in a shorter time and potentially save thousands of dollars in interest, reports the LA Times. Homeowners pay off the equity debt quickly with extra funds.

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Full Answer

A homeowner takes out a loan from the equity line, uses the funds to pay down the mortgage, and then regularly deposits amounts to pay off the equity loan quickly, says the LA Times. The quicker a homeowner pays down the mortgage, the more each payment consists of the principal and not interest. A computer software program tells the homeowner when the equity line has been paid off enough for it to be advantageous to take out another loan to pay down the mortgage. Although the equity line loan likely carries a higher interest rate than the mortgage loan because it is being paid off quickly, over the long haul, it is less costly to use this system than paying off the interest that accrues on the mortgage.

Because such a system depends on the regular paying down of the equity debt, it should only be used by those homeowners who are regularly making more than they are spending, warns the LA Times. If the equity loan is not paid off quickly, it could leave the homeowner with a greater debt burden than simply paying the mortgage amount regularly.

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