Mortgage payoff on steroids

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When Stockton resident Kevin Byrd refinanced his mortgage a couple of years ago, he figured he'd need the full 30 years to pay off more than $300,000 in debt.

Now he expects to get it done in just 10 years. Or less.

Byrd, 50, is employing a system called an accelerated mortgage plan that essentially uses a line of credit to pay down his home loan in record time.

It's not for everyone. But for those with plenty of financial discipline -- and as much as $3,500 to shell out for a special computer program -- this might be something to consider.

"I didn't believe it at first," Byrd said. "But as long as you're making more money than you're spending, it'll work."

Here's the deal: Accelerated mortgage plans hinge on using a line of credit based on your home equity as a repository for your paychecks and as the vehicle for paying down your mortgage.

The equity line provides the liquidity to make payments of between $5,000 and $15,000 against your principal at periodic intervals. As you deposit additional paychecks into the line of credit, the software tells you when the account has evened out again and when another principal payment can be made.

The faster you pay down your mortgage, the quicker each regular payment will consist primarily of principal, thus shortening the term of the loan. That's the basic idea.

Even though the equity line probably comes with a higher interest rate than your original home loan, proponents of the system say that the short-term nature of the line of credit -- you're repaying it every few weeks or months -- ends up being cheaper over the long haul than the interest that would accrue on your mortgage.

But that assumes you're consistently making more money each month than you're spending on food, fuel and other necessities. It also assumes that you'll never fall behind in repaying your equity line or need extra cash for some unexpected expense -- a job loss, say, or a health problem.

In that case, you can quickly find yourself drowning in debt.

"People have to be really disciplined and understand the system," said Randy Ramirez, president of Wilshire Financial Inc., a Pasadena mortgage broker. "If they don't, it can really backfire."

The accelerated mortgage system is relatively new to the United States but it's been widely used overseas for years. In Australia, it's estimated that more than one-third of all homeowners use such a system. In Britain, about a quarter of homeowners are said to use this approach.

Americans, when they're inclined to actually pay off their debts, tend to adopt more conservative tactics. Many homeowners will simply add $100 or $200 to their monthly mortgage payments to be applied to paying down the principal.

Another increasingly common method is to make an extra month's payment each year, or to make two payments every couple of weeks that add up to an extra month's payment (for a total of 13 months' worth of payments annually).

Each of these approaches accomplishes the same thing: a speedier reduction in principal and thus a lowering of the balance on which interest accrues.

Each also has the benefit of being largely risk-free. If you have the extra cash, you're using it to pay down your mortgage. If you don't, you're still making your basic monthly payments.

Mortgage pros say that paying a little extra each month can shave about eight years' worth of payments off the average 30-year loan, saving homeowners tens of thousands of dollars in interest.

The newfangled accelerated mortgage plans are more aggressive because they commit all of a person's discretionary income to paying down principal. You're not saving; you're not investing in stocks. The system is predicated on having no other financial goal except to rid yourself of your mortgage.

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