Gorman & Gorman launches Home Ownership Accelerator

Gorman & Gorman Home Loans, 1540 E. Primrose, has introduced the Home Ownership Accelerator.

Mark Gorman, executive officer at Gorman & Gorman Home Loans said the Home Ownership Accelerator program was approved for use in Missouri in January.

The program’s loans come with a monthly adjustable rate based on the one-month London Interbank Offered Rate Index plus a margin – the standard margin 3.25 percent. LIBOR is an average of the interest rates that major international banks charge each other to borrow U.S. dollars in the London money market.

How the accelerator works

Gorman said the program ties a borrower’s checking account and mortgage together, but the quicker payoff doesn’t require a change in spending habits.

The homeowner deposits paychecks directly into a line of credit mortgage account instead of a regular checking account. Gorman said this begins to reduce the principal balance immediately.

“This is the product banks don’t want you to know about,” he said. “You become your own bank, while saving tens of thousands of dollars.”

At the end of each day the checking account is swept, and the amount left after transactions is applied to the principal of the loan, Gorman said. Interest on the loans is based on daily balances, which results in immediate interest savings. “This program takes everything you know about current mortgages and throws it away,” he said.

Target market

While the program’s specifics can be beneficial to borrowers, Gorman said the program isn’t for everyone. Good candidates, he said, would be those borrowers who have high monthly cash flow and monetary discipline.

“This program is not for the typical person,” he said. “It’s not for the person who spends almost everything they make in a month. It is for someone who can save their money.”

Interested borrowers must meet three requirements:

• At least 20 percent equity in the home;

• A credit score of at least 680; and

• A minimum loan of $100,000.

Each time a borrower makes a deposit, the principal of the loan goes down, though interest rates are slightly higher than traditional home loans.

“They are a little higher, but the client gets a free ATM card and access to online banking,” he said. “It’s a powerful program; it’s not about the rates. It’s about the interest savings and equity buildup.”

The traditional route

Other local lenders in the traditional arena are skeptical of the Home Loan Accelerator.

“An individual could pay it down quicker … but traditional loans are better because we are more conservative in this market,” said Susan Edwards, Springfield branch manager for Countrywide Home Loans. “In this area, customers want a fixed rate, whether it be 15 years or 30 years.”

Still, she noted that as long as borrowers understand the accelerated payoff program, there are some who could benefit from it.

Marita Thomas, vice president and department head of residential real estate at Empire Bank, said the Home Ownership Accelerator is an interesting concept, but she echoed Gorman’s statement that it isn’t for everyone.

For example, she said, borrowers who have existing mortgages with lower fixed rates would likely not want to switch.

“People who would be eligible for the program may want to use their funds for other investments that could yield a higher rate of return,” she said. “So paying off their mortgage early is not a factor for them.”

Thomas said customers might want to keep the traditional interest for a tax deduction – less interest paid means less will be deductible.

The traditional route also will continue to be more viable for those who cannot participate in the Home Loan Accelerator – those with lower credit scores or those who lack the required equity.

Those are the customers Mac-Clair mortgage will continue to serve, said Eric Meruelo, regional branch manager of Mac-Clair mortgage. He noted that Mac-Clair doesn’t offer an accelerated payoff program, but it does offer line-of-credit options for borrowers.

“We finance customers who need full financing,” he said. “A lot of times they cannot put 20 percent down. (Home Ownership Accelerator) is a good program, but geared to those who can put money down.”

Origins of the Home Ownership Accelerator

The accelerated payoff program originated in Australia, where mortgage interest is not tax-deductible. The Home Ownership Accelerator Program now controls more than 40 percent of the Australian mortgage market, and more than 25 percent of the market in Great Britain.[[In-content Ad]]