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 1. What makes the loan pay off sooner?
The main performance driver is the fact that you direct-deposit all your income into this loan, driving down your principal balance dramatically. Interest is based on your daily balance. Even if you spend most of your income during the month, your daily balance will be less when compared to a traditional loan, and you save interest. This leaves more of your income available for principal, accelerating the buildup of equity with no change to your spending habits. Naturally, the more positive cash flow you have, the faster your loan paydown will accelerate.
2. If I pay off early, will I lose my tax deduction?
Yes, and this is good, because you’ve eliminated your interest burden. We believe that “interest is not in your best interest.” Paying $3 in interest to get approximately $1 in tax deductions is not a good long-term strategy, so getting rid of your mortgage quickly is prudent. And, of course, while you’re still paying down your balance, the interest you do pay IS deductible (see your tax advisor).
3. The loan is based on the LIBOR index – why is the margin slightly higher than other loans, and what if rates go up even higher?
Here is where we’re changing the way mortgages are viewed. It’s no longer about the rate. It’s about how many dollars of interest you pay on a lower principal balance. With this loan, your principal balance is continually forced down by your direct deposits, and this can offset the effect of higher rates because you’re paying interest on a lower balance. This effect actually compounds as time goes on. The best way to observe this is to use the Interactive Simulator You’ll see why the slightly higher margin on this loan, which is required due to its highly transactional nature, can have such a minimal effect on the overall payoff timing.
4. What is the payment?
Again, we’re changing the way mortgages work. Every time you make a direct deposit of your payroll, or add funds from another account, you’re in effect making a payment. Then at the end of each monthly statement period, interest is charged based on your daily principal balance. If you have available credit, we simply add it to your principal balance
5. Who is the ideal customer for this loan?
The Home Ownership Accelerator is ideally suited for responsible homeowners with positive cash flow, who understand that parking their cash against their loan balance can earn them a higher effective return than in a low-interest checking or savings account.
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