Quote:
Originally Posted by NoSoup
Although I didn't spend the time to review the 18 minute clip, I can say that for as long as I've been in the industry this "system" has been around.
Unless magical money is coming from somewhere, it's better long term simply to pay down your mortage with out of pocket money. Taking out a lump sum on a second mortgage nets you exactly nothing - well actually, that's not completely true. You'll still owe the same amount but you'll be paying a higher interest rate, so it actually nets you down.
For some, this "system" might work - but if it does, it's only because it causes the user of the system to discipine themselves and pay extra on their mortage however often the particular "system" requires.
You'd be better off paying directly out of pocket any extra you can as soon as you can. Over the course of the loan, it'll save * you more than any "system" involving the use of borrowing money at a higher interest rate.
*I say save, but in essentially your house is simply costing you closer to the amount you agreed to purchase it for. A minor difference, but in my opinion a very important one.
-----Added 11/8/2008 at 09 : 23 : 24-----
So here's the scoop - and the math to back it up.
***EDIT****
I watched the video, and the figures they use are ridiculous. There are so many problems with their calculations it's unbelieveable.
Case in point - the video assumes that both individual are paid on the 1st of the month, once a month (calculated from the average daily balance of their credit line)
Additionally, it also assumes that they spend exactly $0 of their discretionary income on anything non home related.
Even providing both of these insane assumptions are true, here's the math that shatters the "system."
So, here's what we assume -
For all scenarios, $5,000/month net income
$200,000 in debt (only mortgage debt)
"Household expenses" of $4,000
Discretionary Income of $1,000
Mortgage specifics -
$200,000 is at 6.0% fixed for 30 years
Home Equity Line of Credit is at 8.6% Variable - for the example, we'll say it's fixed, but know that it will more than likely substantially increase over the next 30 years - and the vast majority of HELOCs have an annual fee ranging from $75.00 - $200 a year.
Scenario 1 - you pay minimum amount on your mortage for 30 years
$200,000 Principal
$231,676 Interest
$431,676 Total Repayed
Scenario 2 -
You follow that garbage system on the website.
It doesn't specify what the average daily balance over the life of the loan for the HELOC is, so I'll utilize the specific interest payed over the life of the loan that it did state. Supposedly the system uses sophisticated algorithams to determine the optimal time to "balance" your account. Riiiiiight.
According to the video, you'll pay $71,000 in Interest that has accrued on both the Home Equity Line of Credit and 1st mortgage combined after following the system.
To summarize: Scenario 2
$200,000 Principal
$71,005 Interest
$271,005 Total Repaid.
Scenario 3: Real Life
The ultra mega secret system basically assumes that since you aren't using any of your $1000.00 discretionary pay, you're putting it towards your mortgage. I'll assume the same.
$200,000 Principal
$67,384.23 Interest
$267,384.23 Total Repaid (winner!)
So... to sum it up, if you're borrowing at a higher interest rate to pay off a lower interest rate with the goal of saving money long term, you're an idiot.
These are the most basic assumptions, with everything tipped towards having the maximum impact shown in "the system's" *savings*
Still, common sense prevails.
Of course, once you consider adding the complexities of using "the system" - like not getting both yours and your spouse's total monthly income directly deposited into your account the 1st of the month, or taking into account the actual cost they charge you for "the system" - or taking into account the fees associated with having a home equity line of credit - not just the annual fee, but the nearly certain increase of a variable rate, it simply would add to amount of money you net using common sense rather than "the system"
What blows my mind even further is that it suggests the use of a personal line of credit instead of a HELOC. Um... Personal line of credit interst rates are substantially higher than HELOC rates - and there is no tax deductibilty, like there is with a HELOC.
To all homeowners out there - there isn't a magic answer. Pay as much as you can towards your mortgage as often as you can, and it'll be paid down faster and you'll pay less in interest overall. Unless you're able to borrow some money at a lower interest rate (take into account tax considerations) it's a bad idea.
And no offense mortgage007, but I'm ashamed that you've been in the industry for 30 years and buy into this garbage.
Also, I just googled the price - wowzers! What a scam!
From The Simple Dollar Money Merge Accounts: Are They A Good Deal For Home Borrowers?
Not only are you charged ridiculous fee, you get to pay interest on it to "accelerate your payments" |
You do make some good points regarding spending of the discretionary income. However, this will work with as litle as $50 in discretionary income. It will just take longer. The only system that I have found that works is the one from United FIrst Financial. You should go to the frequently asked quetions and every point you make is answered. Discipline is a factor of course. To take your thinking to the extreme, why not just pay cash in the first place? Obviously it is because cash is not available. The expamle in the clip does take into account all debts and expenses. $4000 is what thiis example uses for all debts including mortgage. The interest paid over the ten years in this example for the equity line (it is an equity line not a personal line) is about $8400 but but you are depositing $1000 monthly extra. YOu have made so many incorrect assumptions in you prvious post. The system tells you to pay bills when they are due. You deposit your income as you received once per week, twice per month or however you are paid. It makes littel difference. YOu are still missing the interest rate concept of higher rate vs. lower rate on mortgage. Because you average balance is kept low, your actual interst paid on the line is very small. Even a high rate personal card will work alsmots as good. Also, the initial $3500 fee is not financed and no interst is paid on it.
You are so far off base in your understanding of the program. If you have seen the clip and still don't understand, then obviously this is not for you. Thank you for your responses. Would love to meet you if you are in the Palm Beach County area. Gotta go, I lucked out with jury duty this week and will be out of touch.
-----Added 12/8/2008 at 11 : 01 : 56-----
How can a higher interest line of credit help to pay off my lower interest first mortgage? Can you give me more information on the workings of this program?When repaying a mortgage, it's not the rate you pay that's most important. What matters most is the total amount of interest you pay over the term of your loan. With the Money Merge Account system you use your line of credit to reduce the balance owing on your primary mortgage, and you reposition your regular income and your unused “stagnant” money you normally leave sitting in your regular checking and/or savings account to reduce the balance owing on your line of credit. By repositioning your regular income and your unused “stagnant” money you normally leave sitting in your regular checking and/or savings account, you are able to keep your line of credit balance as low as possible, which can significantly reduce the interest that would normally be charged on the line of credit. This means more of your regular payment goes towards your principal balance each month, helping you repay your mortgage ahead of your standard mortgage schedule. The online software system and customer service provide helpful guidance as to the specific transfer amounts and timing that is needed to provide each individual homeowner with the best interest savings possible under this system. Optimum interest savings under this system is a delicate balance between your primary mortgage, your line of credit, your income, expenses, transfers, etc. If you transfer too much to your primary mortgage, it can cost you more interest on your line of credit. If you transfer too little, it can cost you "lost" interest savings on your primary mortgage. This system helps homeowners to reduce both the interest and time owing on their existing mortgage by strategically positioning their money where it can provide much more financial benefit than "sitting stagnant" in a standard checking or savings account. Also, unspent "stagnant" money left against the balance of the loan that homeowners would normally leave in their checking and/or savings account is now working for them 24 hours a day without requiring them to change their lifestyle. When you need money for expenses, you can access it through your line of credit. Intricate financial features and details programmed into the Money Merge Account software help to better educate the homeowner and assist in the greatest time and interest savings possible under this concept.What is the secret behind the Money Merge Account system?
-----Added 12/8/2008 at 11 : 05 : 42-----
Can I do this concept on my own?Absolutely. The simple answer is that anyone can attempt to do something similar on their own. The most accurate answer is that the Money Merge Account system is an advanced tool, specifically designed to take into account the financial variables of individual homeowners' lives and help produce some of the greatest interest savings possible. This complex, yet user-friendly system records and tracks all critical financial data: the individual homeowners' income and expenses; increases, decreases, and out-of-the-ordinary fluctuations in spending; and many other financial variables in their daily lives. The system helps to maximize interest savings with each and every penny and recalculates to maximum efficiency under this concept each and every day. It adapts and adjusts to real life situations instead of expecting homeowners to stick to a static plan.
-----Added 12/8/2008 at 11 : 06 : 43-----
Why am I applying for a line of credit, and how is it associated with my savings and checking accounts?The Money Merge Account Program uses the equity line of credit solely as a vehicle or a tool to drive the program. The system is coordinated through Web-based software created by United First Financial and works independently of the lender. The equity line of credit must have the capacity to operate as a primary checking account and be set up with an open-end interest calculation rather than a closed-end interest calculation. Combined with the Money Merge Account software and service, this creates a system in which the money in your line of credit account generates an interest cancellation on your primary mortgage, while the unused money that normally would be sitting "stagnant" in your checking and/or savings account generates an interest cancellation on your line of credit, until otherwise needed.
-----Added 12/8/2008 at 12 : 52 : 21-----
James Barnes
August 1st, 2008 at 10:22 am I am always amazed how people can comment on software they have not seen. I have been in the mortgage business for 25 years, know all of the tricks to paying off mortgages early, and have NEVER seen anything as good as the MMA. Noone here is addressing the fact that not only will your home be paid off in record time but ALL of your debts will paid off in record time and with having as little as $50 of descretionary income after all your dry cleaning, going out for dinner, etc. It does not require a line of credit or even a credit card, just a simple savings account.
Plug in an extra $50 a month in your mortgage payoff calculators and see that would only generate a couple years savings in payments. Plug in that in the MMA and save15 years and pay off your credit cards and car!
Before you make comments, please take the time to check out the software. I too was extremely skeptical being a mortgage professional for a quarter century and a mortgage software designer and reseller. The amount of code written to do all the necessary calculations to help people make the best decisions when their situation changes due to an illness, loss of job, or necessary purchase is staggering. Have an agent show you version 4 of the software. It is awesome, and the $3500 is for free upgrades and support until the loan is paid off and it is guaranteed to work or your money back according to their agents. No, I dont have the software and I am not an agent. My house was paid off when I did some real estate flips in the early 90’s. When I do move up to a larger home, I will be buying the software.
Ernst and Young just gave them the regional award for best fiancial software and they are up for the national award too. Personal Investor Magazine just gave them an award for the best new software.
A scam is something that you pay for that doesn’t work. Looking at all that is being said on the web about this product, the only thing I see is that they think it is expensive. Noone ever says it doesn’t work . Because it does…
-----Added 12/8/2008 at 12 : 57 : 19-----
There is a lot I could say about this. Frankly I’m both amused and dismayed at so many comments on the internet about a product that are written by people who know so little about it. So here I’ll just comment on the 5 points cited in the article above, “United First Financial and the Money Merge Accounts: Scam or Legit?
1. It assumes that your HELOC interest rate will be the same as your first mortgage interest rate - very unlikely. The bigger the HELOC rate, the less you save on that difference.
This is a complete misrepresentation of the how the system works. One, it is not true that the program assumes the interest rate will be the same as the first mortgage. Secondly, it is not necessarily unlikely that it will be the same or higher. Third, it makes very little difference what the HELOC interest rate is because the interest calculated on the HELOC is based on the average monthly balance which is a completely different application than for a traditional mortgage. So this statement reveals no real understanding of the product or its application.
2. It assumes a single monthly paycheck so it’s a plan that loses some of its power if you are paid irregularly or every two weeks.
This comment is ridiculous. It doesn’t assume this at all, and in fact the more frequently you are paid the better the system will work for you. But even if it did assume a single monthly paycheck, and you’re paid every two weeks or every week as I am, then all you would have to do is hold your money in another account and deposit it into your HELOC once a month.
3. One big flaw is that there is never discussion of HELOC fees. I’ve never opened a HELOC but I imagine it’s not free.
The truth comes out on this one. Of course if you’ve never opened a HELOC you don’t have any concept of their features. I have opened a HELOC and guess what, there are no fees whatsoever. So the “one big flaw” turns out not at all to be a flow because whether you can imagine it or not, it is free.
4. This plan requires that you don’t save at all for anything else. Since your entire paycheck goes towards the mortgage and you withdraw expenses, it penalizes you drawing on the HELOC for non-essentials. Why pay $100 towards a 6-7% mortgage and then borrow $100 from a 10% HELOC?
Again, this is a complete misunderstanding of how the system actually works. You actually DO save money, a lot of it, because you are working toward paying off your home mortgage at a greatly accelerated rate, thus saving tens of thousands of dollars in interest payments and future monthly obligations. And you’re not borrowing at a higher rate at all. So the question should be, why pay mortgage interest every month for many years when you can get out of debt much quicker by using a money merge account system?
Finally, as if all those weren’t enough, you have to pay $3,500 for a program to help you do this!?
Well first, all of those are fundamentally flawed assumptions, as I have indicated. Secondly, $3500 is a small price to pay for a system that will pay off your home mortgage quickly and deliver you from becoming one of the ever increasing victims foreclosure.
I am old enough to remember when the Individual Retirment Account (IRA) concept hit the financial market. For about ten years, up through the mid to late 1970s most financial experts said it was a flawed concept. Many called it an outright SCAM. I don’t think anyone is saying that about IRAs today. I’ll just conclude with a quote from Einstein. “The significant problemes we face cannot be solved at the same level of thinking we were at when we created them.” And Lord knows we have created a mortgage payment plan nightmare that is now resulting in tens of thousands of people facing foreclosure. Had they used an MMA system to begin with many of them would now own their homes free and clear.