Anyone Heard/using Money Merge Acct

[emptynester]

Just wondering if anyone here has heard of and/or is trying this money merge account for paying off your mortgage early. If so, how is it working for you. How long have you been doing the program and which program are you with.

We have been approached by an agent from UFirst Financial. So far it sounds great but I am curious as to whether anyone here has tried it or a similar program.

 

[wally2450]

Interesting article:
http://www.realestatejournal.com/buysell/mortgages/20040630-cullen.html

Making one extra payment a year cuts about seven years off a thirty year mortgage.

 

[DrHappy]

As a long term strategy, you'll typically get a better return if you take the same money and use it for investing in mutual funds. It depends on the performance of the mutual funds and the mortgage interest rate. Most index funds get a return of greater than 10% on most years, but mortgages are usually much less. If the stock market falls for a long time, then it would be better to payoff the mortgage.

Beware of administrative fees for some of the early mortgage payoff gimmicks. They'll also make it sound complicated. You can simply pay some extra money each month to pay down the principle. You can do this for free, but it doesn't have a fancy marketing team to make it sound sexy and to help the bank make more money.

 

[emptynester]

Making one extra payment a year cuts about seven years off a thirty year mortgage.

We are already on a course for an earlier payoff but this is a specific program designed to cut your mortgage in half or even less. There is a formula based on your debt and income that tells you how many years it would take to pay yours off. Everyone is different but most are in 1/3 to 1/2 the term. The interest you save when figuring what you would pay over the term of your mortgage is amazing.

According to what we have read about it on the internet, it has been widely used in England and Australia.

I am wondering if anyone here has tried this or knows anyone who has.

Actually Dr. Happy it is designed to give you more income rather than the bank. It is an interesting concept. I just want to hear from someone who knows first hand whether or not it works.

 

[cloudy]

If you make half a payment every two weeks (with your first half payment two weeks early), you will pay off a thirty year mortgage 11.5 years early, or in 19.5 years.

It's one extra payment a year, but as you move through your payments, they also get made earlier and earlier, cutting down your interest rate.

Would seem like the easiest solution to me.

 

[DrHappy]

After looking into this further, I’m even more skeptical. It requires a Home Equity Line of Credit (HELOC) and a $3500 payment for their MMA software. (Giant red flags!). The UFirst website refers to an Advanced Line of Credit (ALOC) instead of a HELOC. The line of credit is “merged” to your checking account as the ALOC. I couldn’t find any references to $3500 on their website, but other web discussions strongly indicate that it is required up front. It may not be a complete scam, but it doesn’t appear to be the big bargain that it’s made out to be. It uses the balance that you would normally carry in your checking account to temporarily payoff the HELOC. They make the details of the system sound complicated and don’t completely explain it.

The algorithms in the proprietary Money Merge Account system are systematically programmed…

They have a brief analysis with some numbers on their website, but it looks like they aren’t really comparing apples to apples. For instance, they don’t appear to account for the opportunity costs of not investing the $3500 elsewhere. Their cost of the non-MMA mortgage doesn’t include any tax deductions of the interest. The ALOC will also need some money to get started if I understand correctly. I’m sure that there are other hidden risk and financial opportunity costs as well.

Since your paycheck goes directly into the LOC and you pay bills from the LOC, I’m also dubious that a typical real world budget would have that much of an advantage. For instance, if your income expense ratio is such that you have excess money available for investing, you could do much better by investing that money elsewhere (rather than paying off the LOC). If you barely squeak by each month, you likely have a credit card balance near 20%.interest that could be paid off with the $3500. Your savings might be completely toasted if you aren’t financially disciplined.

The bank would not be doing this if it weren’t a money maker for them. The method also seems to have a cult following of promoters. There must be some nice commissions out there.

 

[NippleMuncher]

If you make half a payment every two weeks (with your first half payment two weeks early), you will pay off a thirty year mortgage 11.5 years early, or in 19.5 years.

It's one extra payment a year, but as you move through your payments, they also get made earlier and earlier, cutting down your interest rate.

Would seem like the easiest solution to me.

I was going to make a similar post as this earlier, but since I'm no financial wizard, I refrained. Whenever a bank or mortgage company approaches you with their schpiel, it is in the interests of the company contacting you, NOT YOU, should you sign up for the program, as proven by Doc's post. Do as Cloudy said, and make a payment every two weeks and it costs you NOTHING to pay off your mortgage sooner and cheaper than expected. There are NO fees, NO up front costs, NO hidden charges, NO ulterior motives, and YOU gain all the benefits.

I once knew a broker who did this very thing. You made your single monthly payment to him and he made two payments for you, minus his fee for writing the extra checks. What most people see is that they're not paying an extra 10+ years on a loan, so whatever fees are charged are minimal in comparison, but when you start analyzing the true costs, you aren't coming out that much further ahead by allowing someone else to do the very thing that you can do yourself for free. All it takes is the regimentation to write a check every two weeks instead of once a month.

 

[emptynester]

If you make half a payment every two weeks (with your first half payment two weeks early), you will pay off a thirty year mortgage 11.5 years early, or in 19.5 years.

Thanks for the replies. We have been skeptical of it too but I have to admit the more I hear the more I understand about it.

We are already making a payment every 2 weeks. I have an account where I transfer money in and it is set up to come out every other Monday. Keeps the lender from having access to our regular checking account but keeps me from having to write any checks. The payoff is earlier than the 30 years it is amortized over but not as early as the 11.5 or even the 19.5. you quoted Cloudy.

Dr.Happy, the $3,500 comes out of the ALOC so you are not out the upfront cost. The interest is still tax deductible since it is based on having equity in your home and it becomes a lien on your home just like your first mortgage.

I am not much of a gambler but I think I am interested enough to try this. You actually pay off all of your debt with the ALOC in the beginning. You have to have enough equity in your home to cover the amount of debt you have outstanding (with the exception of your mortgage). You are paying off higher interest debt with a lower interest ALOC. It then allows you to use the money you would have been paying on those debts to apply to the principal on your mortgage.

The amount of interest it saves you is amazing. A friend of ours is doing this and he put our #'s into the formula created by the software he purchased. Even with our current setup, this would cut about 6 more years off our mortgage.

The ALOC is not tied to your regular account. You do put your income into it and pays bills out of it but it is not tied to your regular account in any way. I would have a problem with that too.

Again, thanks for all the replies. We are not 100% sold on it yet but it certainly is an interesting concept.

 

[DrHappy]

I heard Dave Ramsey comment on Money Merge Accounts yesterday. He declared the following quote on their website as a lie: Your 30-year mortgage can now be paid off in about 8 to 11 years, with no change to your lifestyle or refinancing of your existing mortgage. Dave also confirmed what I suspected. The accelerated payoff of the loan is due to spending more of your monthly budget to pay down the principle. He also agreed that you can get yourself into more debt if you aren't careful with the open line of credit.

I dug around and figured out what going on. It's buried in the bank's power point presentation, but in their example, they show a budget with a $1199 monthly loan payment and $1000 discretionary income. They conveniently hide what happens to this income. ALL of this income is applied towards paying off principle each month.

An analysis shown here , shows that you can still come out ahead by not buying their software, and paying the additional $1000/month towards the principle.

Their gimmick of shifting money around during the month saves a LITTLE bit of money, but that money is more than lost by the $3500 cost of the system.

I still agree with my original comment in that as a long term strategy, you'll typically get a better return if you take the same money and use it for investing in indexed mutual funds.

 

[emptynester]

The accelerated payoff of the loan is due to spending more of your monthly budget to pay down the principle. He also agreed that you can get yourself into more debt if you aren't careful with the open line of credit.

We knew that was the theory behind making this work. I agree totally that you would have to be disciplined to not go out and spend any of that HELOC on other things.

This is like a budgeting system but it relies on the mathematical formulas in this software to tell you how much you can put down on principal and still keep the HELOC in balance. Actually I don't think you start applying anything to principal until you get the HELOC paid down. That of course depends on how much you borrow in the HELOC to pay off your other debt.

[/QUOTE] I dug around and figured out what going on. It's buried in the bank's power point presentation, but in their example, they show a budget with a $1199 monthly loan payment and $1000 discretionary income. They conveniently hide what happens to this income. ALL of this income is applied towards paying off principle each month.[/QUOTE]

I have no problem using my discretionary income to pay down principal but I don't think too many people have $1,000 a month. If I have any left over, I seem to help out at least three who work in a budget deficit most of the time (even while living at home again). LOL

Thanks Dr.Happy! We still have not bought the software yet. We are checking like you are on the internet daily. Keep me informed of anything else you learn about it.

Thanks again.

 

[DrHappy]

This is clearly a multi-level marketing scheme. Here is a PDF of the UFirst University Compensation Guidlines. This explains the cult-like enthusiasm of the sales trolls. Of the $3500 fee, $2500 is paid in commissions ($2250 + $250 bonus pool).

I don't think that many of the salespeople completely understand what they are selling. Here is a UFirst Univiersity training manual which guides them through the process of demonstrating the numbers spewed out by the software.

Here is a powerpoint presentation that reveals the discretionary income is used.

NOTE: I found other nearly identical presentations that had deleted all references to discretionary income. They attempted to cover this up!

The "complex software algorithm" using the ALOC does little to save to you money, and this is negated with the $3500. The quick mortgage payoff is from having a significant amount of discretionary budget which is used to pay down the principle. They claim that the program saves you money because the program actually uses your discretionary income to pay off the principle. You can do that without the program. The ALOC/HELOC actually has a higher interest rate than the original mortgage.

 

[kimbernee]

Note that United First Financial is NOT a bank.