Is a Money Merge Account a Good Way to Pay Off Your Mortgage?
Published on - October 1st, 2007 (Modified on - January 14th, 2009) (by J.D. Roth) 
Over the past few weeks, I’ve received several questions about money merge accounts (sometimes called “Australian mortgages”). I haven’t paid much attention to these because I’m unfamiliar the products. But when Abbie wrote last week, I decided to do some research. Here’s what she said:
My financial guy handed me a DVD for United First Financial the last time I spoke with him. Apparently they are a company that uses “sophisticated algorithms” to compute how to best pay down a mortgage using a HELOC and a Money Merge Account, with the end result being that the mortgage is paid off in fewer than 30 years. (Their preferred statistic seems to be 11 years.)
I’m new to the whole homeowner thing, and know there are differing opinions regarding paying off a mortgage early, but was wondering if you’re familiar with this system. I’d appreciate any information or opinion you have regarding money merge accounts or UFF; a bit of web research comes up with inflammatory chats and the company’s own claims, but nothing from a reliable third party.
I spent three hours researching money merge accounts, and was unable to find any better information than Abbie did. From what I can gather, here’s how they work:
- The homeowner sets up a home-equity line of credit (HELOC), borrowing against the value of his property.
- Some large sum is withdrawn from the HELOC and used to pay down the primary mortgage.
- The homeowner does not deposit his paychecks, etc. into a traditional savings account, but applies them to pay down the HELOC.
- From time-to-time, another large chunk of money is taken out of the HELOC and applied to the primary mortgage.
- In case of emergency, the homeowner takes more money out of the HELOC.
- Though the HELOC will likely have a higher interest rate than the primary mortgage, it’s actually cheaper to maintain because of the way the interest is calculated.
In the case of United First Financial, all of the timing for these actions is prompted by proprietary software, for which the homeowner pays a one-time fee of $3500. These prompts are not mandatory, but if they’re not followed, it defeats the purpose of the program.
The consensus on the web seems to be: yes, these programs can help you pay down your mortgage quickly; however, they don’t do anything that you could not do yourself for free. The expense might be worthwhile if:
- You want to pay off your mortgage.
- You don’t believe you’ll have the discipline to pay down your mortgage on your own.
- You do not intend to move — you believe you’ll be in your current house for many years.
But most people with the financial resources to accelerate mortgage payments are able to do so without the assistance of a third party. The easiest (and most flexible) mortgage acceleration program is the one you control yourself: simply send extra money to your bank on a regular basis (being sure to note that the extra ought to be applied to principal). You’ll save nearly as much as you would with a money merge account. (Proponents of MMAs admit this!) If you find after a couple years that you lack the discipline to do this on your own, then you might seek a reputable source for a money merge account.
You can read other discussions of money merge accounts at these sites:
- It’s important to note that the Australian Securities and Investments Commission doesn’t like money merge accounts. “Consumer organisations … concluded years ago that there were no savings to be made, and that promoters were engaged in unlawful conduct.”
- Fat Wallet Forums: United First Financial — Looking for the truth contains 52 pages of discussion on this subject.
- Fat Wallet Forums: Mortgage accelerator/offset accounts facts and myths
- Real Estate Blog: Money merge accounts: Good fairy or demon?
- The Simple Dollar: Money merge accounts: Are they a good deal for home borrowers? (742 comments and growing!)
- Asset Builder: Accelerated home ownership thru line of credit
Before you begin a mortgage repayment program of any kind, be certain that you understand the consequences. Accelerating your mortgage payments may provide psychological comfort, but there may be smarter financial choices. Last year the Federal Reserve Bank of Chicago released a study [PDF] that found:
About 38% of U.S. households that are accelerating their mortgage payments instead of saving in tax-deferred accounts are making the wrong choice. For these households, reallocating their savings can yield a mean benefit of 11 to 17 cents per dollar.
All of this discussion about money merge accounts is just theory. I’d love to hear from somebody who has first-hand experience with them. Do you love the idea? Hate it? Do you think it’s worth the cost? Let us know!
Note: Just as I was finishing this post, I recieved another e-mail about money merge accounts. They seem to have reached some sort of critical mass.
This article is about Choices, House and Home, News
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Hi Lin and Lee
Just a quick follow up. Lin, I’m quite comfortable with your logic and agree with you. If you sell the program in the manner in which you describe, I have no issues with it. In other words, if you tell folks that your software will give them the moral support to stay on tract and direct them to pay all of their extra (discretionary) income every month toward their debt and they agree, then you are performing a service.
The way UFF proponents describe why and how the program works is, in my view, deceptive and inaccurate. If you are selling it in the way you describe and you are not using the deceptive and inaccurate statements that can be found on many of the advertisements used by UFF proponents, then keep up the good work.
Bill V.
P.S. Incidentally, does your Weight Watcher’s program advertise that you can loose weight with their program with no change in your eating habits and no change in your physical activities?
Here is a quote from http://www.payitfaster.com. “Our average clients are paying off mortgages, student loans, auto loans, credit cards, and other debt in as little as 1/2 to 1/3 the regular time, with no refinancing of existing mortgages and little to no change in current lifestyles.”
Bill V.
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Bill – beautiful. The agents are so full of analogies that fail when any of of continue them. I tip my hat to you.
Lin – instead of $1200/yr on the diet and weight watching, I spent $3000 on a treadmill in 1996, gym quality, still going strong. A couple years ago, I dropped a couple thousand dollars on a big TV to put in front of it. I ran 1000 miles in ’08, and would drop below the healthy weight if I lost 25lbs, let alone 75. As Calvin states, MMA is a very expensive egg timer. It offers no educational value whatsoever. Once you remove all the exaggerated claims, it has nothing to offer. “no change in spending,” my very lean butt.
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Hi Bill,
I agree with you. I’ve written over a dozen articles “dis-recommending” the MMA, in part for the reasons you describe. Most agents with whom I’ve talked cannot explain how it works.
I recommend alternatives for these reasons:
1) $3500 is too much money.
2) you shouldn’t have to finance your way to financial health
3) most similar programs keep their clients in the dark, avoiding empowering them
4) the agents don’t have to use the program themselves
5) the usual sales pitch makes it sound far more mysterious than it is.
We’ve talked about this for months, so Bill, you know I canceled close to $60,000 of my own mortgage interest within only two years using what some call the “HELOC shuffle.” (Avoided future projected interest, to be precise) I’m glad to see JoeTaxpayer has come on board to see the HELOC offers a liquidity cushion, in case of emergency, etc.
When I wrote “Let Your Mortgage Make You Rich!” I knew people didn’t have to have software to do this. In fact, at that time, I knew of no one selling such software.
Now that I also offer software to those for whom it is a better solution (albeit at $1295 except when on sale), I don’t talk so much about the MMA, because it could seem like I’m just trying to steal away business. However, I have seen clients who bought my book a year or more ago accelerate their mortgage pay-down even faster by getting on the software. Having a household balance sheet in front of you every time you log in (I don’t think the MMA has this, unless they’ve changed recently), incentivizes people to reduce expenses, stay on track — whatever. People who thought they would be debt-free in 9 years are doing it in 3.
Yes, it’s the accountability, education, etc. By the way, I make sure my clients understand how it works so they gain a skill set they can use for the rest of their lives. Because I’ve seen the results, I give every client a copy of the book, because they do BETTER when they understand it!
Weight Watchers: They DO tell you you don’t have to give up any of your favorite foods. lol! What the ads don’t say is: You may be able to have only one or two bites of them. LOL! But it works! I’m not a “joiner,” yet when the universe put a meeting walking distance from my house, I caved, went and joined. So far, 64 pounds healthier and only about 15 to go. Plus, I’m sculpting my flabby ass by subjecting myself to the vigorous (killer) classes at the gym.
I’m with you, Bill, on full-disclosure. When people call me to ask how it works and why, I lay it all out there.
Lin
While some on this board disagree with me about the advantages of the “HELOC shuffle,”
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Hi Lin
Without looking at your actual cash flow in cancelling $60,000. of interest, I will stand by my position that you did not cancel 1 cent of that interest by using the “heloc shuffle”, but rather, cancelled the interest by paying more of your own money than was required to accelerate your debt and cancel the interest. I am comfortable with my position that those on this board who disagree with you about the advantages of the “Heloc shuffle” are correct.
Your 5 listed reasons above are excelent. kudos
Bill V.
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Hi Bill,
The “HELOC shuffle” gives you the advantage of cashflow you may not have, providing the “velocity of money.” More cash goes to principal now, repaid by your discretionary income later, in a month or several months.
In my experience, over the last several years teaching this to people, they have to experience it for 30-60 days before really “getting it,” even though in order to do this they are willing to hope (suspending disbelief and cynicism) for a difference.
It works. Not the only way to achieve the objective of early mortgage retirement, but a good one!
Lin
http://EquityCycling.com
.
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Lin
Give a real live example. Use real numbers. It’s OK
Bill V.
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Bill,
You missed something when you tried to refute the example….one may not have the money at that moment in time.
Say it’s May 30th, and you owe $50,000 on your 6% mortgage. You have only enough cash on hand to pay your mortgage payment on June 1st. You know you are receiving a check on June 2nd for $1000. The mortgage interest for June will be calculated on the closing balance for the month. You borrow $1000 from your HELOC, and make an extra payment on your mortgage, bringing the balance to $49,000 and increasing the HELOC to $1000 (ie, same overall debt). On June 1st, you make your minimum payment, on June 2nd, you pay $1000 to your HELOC.
So….instead of paying 6% on $50k, you paid 6% on $49k, saving you $5 in interest. You have a HELOC balance of $1000 for 3 days at 7% (May 30, 31st, and June 1). That’s $0.58. You could not have paid the extra $1000 before June 1st because you didn’t have the money yet. You could easily send the $1000 after June 2nd once you got the check, but anytime in June leads to an extra $5 in mortgage interest.
The closed ended loan charges interest for the whole month based on a balance at one moment of time versus the open ended loan charges on the average monthly balance.
There is some savings to be had, but the savings are so small, actually paying for any system to do it will negate the savings. Not to mention it’s more risk and more work, even with software running the show. If you balance your checkbook, you already do all the work you need to do to basically match it, and a good interest rate beats it.
As for Lin, you could be considered worse than the UFFers. Many UFFers don’t know they are lying. You point out their lies, then make the same lies they do.
Calvin
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Calvin, if I have spoken any “lies,” I would like to correct and apologize. Can’t think of any. Differences of opinion, to be sure. Misrepresented facts? I don’t think so, but I am willing to be corrected. Better make it more than just a personal attack however. (This gym membership is making me really strong…you may not want to fight with me! )
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Bill,
Please describe what real numbers you’re asking for. Not sure whay you’re saying.
Lin
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Bill,
Please describe what real numbers you’re asking for. Not sure what you’re saying.
Lin
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Lin,
We’ve been over this dozens of times. “you know I canceled close to $60,000 of my own mortgage interest within only two years using what some call the “HELOC shuffle.” The HELOC shuffle had NOTHING…I repeat NOTHING to do with your “cancellation,” it was purely your own money. There is no “other people’s money”, there is no “leverage”. The microscopic savings that could be generated would be absolutely dwarfed by the cost of your software…heck…even the cost of your joke of a book. A simple rewards checking account would beat the HELOC shuffle….with less risk and less work.
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Lin and Calvin
Lets use Calvin’s numbers and complete the calculations
Assumptions:
Mortgage interest is paid in arrears (i.e. June payment is for May’s interest.)
Borrower has a 6% 1st mortgage loan
Borrower’s balance on his mortgage loan after he makes his 05/01/2009 payment is $50,000.
His required monthly P&I payment is 303.50
Next payment due is 06/01/2009
Its May 30th, 2009
He has a HELOC with a 0 balance and has a 7% annual rate if used
He borrows 1000 from his credit line on May 30th and pays it to the 1st mortgage principal balance.
On 06/01/2009 he makes a payment of 303.50
On 06/02/2009 he pays 1000.77 (1000 + 4 days interest) to his heloc
On 07/01/2009 he makes his regular monthly p&I of 303.50.
Statement & Question:
He has paid a total of 1,607.77 in payments.
After these payments, what is his balance on his 1st Mortgage?
Bill V.
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Wow! Calvin! I didn’t realize you’d read my book! How cool!
Lin
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Lin, I wouldn’t waste my time reading your book. I got about halfway through your video and the lies were too many to count. I don’t give money to liars. I’d probably donate to a politician before I paid for a product of any sort from you, and if you really knew me, you’d know that was a low blow.
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Calvin, do you ever take the high road?
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Lin,
Calvin might be the “Simon” of this board. He just says what others might be thinking.
Think about this.
You said:
I recommend alternatives for these reasons:
1) $3500 is too much money.
—-How much is enough to do what can be done for free
2) you shouldn’t have to finance your way to financial health
—-You charge 1295
3) most similar programs keep their clients in the dark, avoiding empowering them
—-I watched your video and it tells a customer Nothing of substance, it’s just a meaningless sales pitch.
4) the agents don’t have to use the program themselves
—-Neither does anyone else
5) the usual sales pitch makes it sound far more mysterious than it is.
—-You use terms like “Heloc Shuffle” and “velocity of money” as real assets to your system. It doesn’t get more mysterious than that.
We’ve talked about this for months, so Bill, you know I canceled close to $60,000 of my own mortgage interest within only two years using what some call the “HELOC shuffle.”
—-Statements like this are (to take the high road) inaccurate!
If, in fact, you canceled close to 60000 of interest, you did it by paying extra principal or lowering your rate by refinancing, both of which MMA says are unnecessary. You did not do it by using the heloc shuffle.
Please look past the style of the comments and contemplate the content.
Bill V
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Calvin,
any answer?
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Lin
If you insist on using your HELOC and want to save the most, stop cycling. Just borrow enough from the HELOC so that at some point in the month, your balance goes to $0.00, and NEVER PAY THE HELOC OFF. That is the most cost-effective way to use the HELOC.
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Bill….
Person A: MMA
Mortgage Balance, HELOC Balance:
5/30 $49,000.00, $1000.00 transfer
6/1 $48,941.50, $1000.38 P&I payment, 2 days interest on HELOC
6/2 $48,941.50, $0.0 HELOC payment of $1000.77
7/1 $48,882.71, $0.0 P&I payment
Person B: 0% interest checking account
6/1 $49,946.50, $0.0 P&I payment
6/2 $48,946.50, $0.0 $1000 extra payment
7/1 $48,887.73, $0.0 P&I payment
Person C: 5% interest checking account
6/1 $49,946.50, $0.0 P&I payment
6/30 $48,946.50, $0.0 $1000 extra payment
7/1 $48,887.73, $0.0 P&I payment
note: person C earned $3.89 in additional interest.
The first one paid $1607.77, second one paid $1607.00, as did the third.
Second one is $0.77 cash richer than the first, the third is $4.59 cash richer than the first, but both have $5.02 more debt at this point. Either can apply the cash saved to the debt.
These dates are extremely advantageous to the MMA and are atypical (one generally gets paid at the middle and end of the month, or end of month, or weekly, not beginning of month). HELOC cycling has a value, it’s just tiny, and for typical dates and rates, negative versus an interest checking account.
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Excuse me Lin? The high road?
The high road is NOT misleading your customers.
The high road is NOT outright lying to your customers.
The high road is NOT bashing a company for doing exactly what you are doing.
The high road is NOT charging (lots of) money for bad information.
In short, the high road is NOT ripping off your customers.
If you want to get into a battle of ethics, pick another fight. You will lose this one. Badly.
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Calvin,
Thanks for responding. Please consider the following:
A payment of principal during the month, in addition to the normal P&I payment is called a principal curtailment. A loan servicer may do one of 2 things when a principal curtailment is made.
1.) The Lender will, because they are lazy, just compute interest based on the balance of the loan at the end of the month after the principal curtailment has been made. (This is what you assume in your example.)
OR
2.) The lender will properly compute interest on the balance for the number of days of the month up to the date of the principal curtailment, then continue to compute interest on the reduced balance until the end of the month.
In the event that the lender charges interest in accordance with option 2 (most servicers do) then the advantages you describe no longer exist.
Moral to the story. There is no gain using a HELOC Shuffle if the 1st mortgage servicer is properly doing their Job. I am with a lender who handles principal curtailments with option 2. If a borrower is lucky enough to be with a lazy servicer (option 1) then they could derive a miniscule advantage by using the heloc shuffle. It would, however have to be used the way your example shows. which is not the way MMA directs. If your interest rate is higher on the HELOC, you will loose under either option if you follow MMA’s directive.
Thanks again
Bill V.
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Bill,
Just an FYI, I don’t know a single lender that does what you describe in #2. My lender did how you describe in #1. My mortgage document specified it. There are a dozen plus people in my office paying ahead on their mortgage, all using a spreadsheet I made (some altered it to their tastes). All their mortgages follow #1 as well (the spreadsheet wouldn’t track correctly if it did the second case). I’m not saying there aren’t banks that do it the way you describe, just saying I haven’t come across one yet on a conventional fixed rate loan.
just my $0.02. I’m as big an opponent of MMA out there. I think it’s a waste of time, rarely any benefit, more work, and more importantly, more risk.
calvin
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Calvin,
You do Now. My bank.
Lin,
Please note how civil a conversation can be when nobody is trying to misrepresent the facts, keep your customers in the dark by using terms like “velocity of money” or telling customers that you cancelled 60,000 in interest with a “heloc shuffle” rather than telling them the truth that you paid additional principal toward your loans.
I agree with you that we should all take the High Road.
Bill V.
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Bill – I believe you regarding opt 1 vs 2, but my experience has been #1 as well. Most banks will not permit a principle only payment unless it comes at the same time as the regular mortgage payment, a midmonth payment would get put towards the next regular payment.
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Joe & Calvin
Consider this. If Joe’s theory is correct, then Cavins example of a 49000 bal. on person A would be incorrect. The 1000 would not have been applied until June. The borrower would have paid interest on 50000 for May and paid interest due on the heloc. This scenario does not benefit the borrower.
Your thoughts Joe?
Bill V.
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Bill,
My bank allowed as many extra payments I wanted up til the 15th of the month. They would be applied to the balance before the interest for the next month was calculated. Anything after the 15th was held until the next month. Some of the people I work with have similar restrictions, while some can make extra payments up til the last day of the month. No one here has a restriction of only 1 payment per month. I’m sure banks vary quite a bit on this, but yours is the first I’ve heard that charges daily interest insted of monthly (for fixed rate loans). I think you’ll find your in the minority, not the majority.
But in the end, we agree, the MMA is generally not worth any money, much less $3500. Even paying $97 would be negating any savings, if there are any for one’s particular terms, payment, and bill dates.
calvin
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Hi Bill,
Yes, I appreciate a civil conversation. Unfortunately, intensity escalates by way of accusations.
You said you watched my video and it’s a sales pitch. Right. That’s what it’s supposed to be. I have chosen to earn a living sharing the information I have, so I don’t describe everything in detail in a public video, nor in a comment thread on a public blog.
I can think of several people who’ve participated in this discussion who think it’s not right to charge for this information and support. However, my hunch is each of those people works at *something* for a living. So I don’t apologize for what I do. Neither do I call it something it isn’t. It’s a business.
As is JD’s blog, by the way. And look how helpful that is!
Here’s a question for you, Bill: How do you define the velocity of money?
I don’t disagree ultimately it’s discretionary income that accelerates a mortgage paydown. I do, however, think that mathematically it makes more sense to pay down $10,000 now rather than $1000 a month for the next 10 months. Including HELOC interest.
If you really interested, contact me. If you just want to win an argument, I’m sure you believe you already have.
Lin
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Lin, I respect Bill, and await his answer, but neither he nor you get to assign a definition to ‘velocity of money’. It’s a technical term, already defined in finance. You should Google it, and understand it has nothing to do with this or any other mortgage scam.
And no, it doesn’t make sense to borrow $10K at the 8% example rate to pay down a 6% mortgage, and then pay that $10K down $1000/mo. Of course, if the HELOC has dropped to below your mortgage rate, it’s your choice to borrow at the lower rate.
Lin, I love your Q/A
Q. Do I have to spend less and pay more every month for this program to work?
A. No. If you are currently making more than you are spending per month, you do not need to change your behaviors. Many people that want to pay their home off even faster make changes in their spending behaviors, but changing your budget is not necessary.
Amazing. Same Lies told by the MMA agents.
Any other words whose definitions you’d like to change? Please keep me posted.
Joe
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Hi Lin
I have absolutely no problem with a sales pitch provided that it provides at least a modicum of information.
I would be happy to have a discussion with you on the “velocity of money” but have personally never had to use such clever language to inform a person that they can pay debt faster by paying more to their debt or pay less interest with the same cash flow.
Your reason # 5 for disapproving some programs is “the usual sales pitch makes it sound far more mysterious than it is.” Yet you do the same thing by using terms, the definition of which have to be twisted to an unrecognizable point in order to be relevent to paying debt off more quickly.
Remember, lower your interest rate and pay more money toward your debt.
You say “I do, however, think that mathematically it makes more sense to pay down $10,000 now rather than $1000 a month for the next 10 months. Including HELOC interest.” If the interest rate on the HELOC is Higher than the debt being paid down, then I respectfully disagree. If you wish to provide an example, I would be willing to comment.
Thanks Lin,
Bill V
ps Velocity of Money: Let M be the nominal stock of money, let P be the nominal price level, and let Y be the flow of real transactions (often proxied by real GDP). The equation of exchange
MV = PY,
where V is the velocity of money, always holds because the velocity of money is not directly observable. In other words, the equation can be rearranged to make it clear that it is simply the definition of velocity:
V = PY / M.
This math can be turned into a theory of the demand for money if the velocity is taken to be a behavioral outcome determined as a function of certain variables such as real transactions and the interest rate.
Hopes this helps someone pay their debt off faster!!
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“I do, however, think that mathematically it makes more sense to pay down $10,000 now rather than $1000 a month for the next 10 months. Including HELOC interest.”
Not if the HELOC interest outweighs the interest savings, which, in most cases it does. And the interest savings will most likely NEVER, even in the most ideal conditions, overcome even paying $97 for the “information” you provide.
That’s the problem we have. The price never outweighs the savings, and more importantly, it’s never just a message of “bigger payments equals bigger savings”, it’s always HELOC cylcing is the greatest thing, even though regular payments almost always beat the HELOC game.
TELL THE TRUTH….. then see how many people buy your “product.”
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Calvin, Bill, Joe:
Thanks for the tutorial on the V. of M. I’m not a mathemetician and have much to learn about mathematics. A wealthy RE investor use the term velocity of money talking about its power sooner rather than later. Perhaps I should just say “speed to principal.”
How is 8% cheaper than 6%? The HELOC interest is 1) for a smaller amount of money, 2) for a shorter period of time, 3) so total cash expenditure is less than on a great amount of money and smaller interest rate for shorter period of time.
If I borrow $100,000 from you for 60 days so I can pay cash for a property, then refi it afterwards for $150,000, taking $50,000 out (hypothetically…not discussing downpayments, percentages, etc.), I can afford to pay you 50 PERCENT interest! I’ll owe you roughly $8500 for using your money for two months, and pocket over $40,000. How is it POSSIBLE to make ANY money when borrowing at 50% and refinancing at 8%?
This is the same principal as using a HELOC at 8.25% to accelerate pay down on a mortgage at 5.875%.
I AGREE that simply paying all discretionary income per month to the mortgage will pay it down. It won’t leave you liquid, unless, as Joe Taxpayer finally acceded, you have a HELOC available for emergencies.
What I do say is this system works. You say it doesn’t. Why can’t you say “it may work but it’s not for everyone”? Wouldn’t that be more fair? more truthful, Calvin?
If any of you was my prospect and called me with the knowledge exhibited by Bill or Joe, I would candidly tell you you don’t need it. You might benefit from the support and forced discipline; therefore, you might pay off your mortgage faster than simply doing it on your own. But I’ve never told anyone this is the only way one can pay off a home in 1/3 the time.
That’s where I hear a big resounding difference eon this board. Some of you think people are all cast into your image. They aren’t.
Personal finance has two prongs. If JD hasn’t taught us all that, some of us aren’t paying attention. Part of it is math. The other is human psychology. Most people must engage both to improve their financial literacy and success. If you do not, then you’re in the minority. Please bear that in mind when writing about your one-size-fits-all philosophies.
Lin
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Lin, I can’t believe it, but you just wrote the following:
“How is 8% cheaper than 6%? The HELOC interest is 1) for a smaller amount of money, 2) for a shorter period of time, 3) so total cash expenditure is less than on a great amount of money and smaller interest rate for shorter period of time.”
That was, by far, the most stupid and easily and conclusively debunked piece of thinking I’ve ever read by anyone who charged for advice.
Put simply, you can not compare mortgage interest over the life of the 6% mortgage to the interest accrued by $10K in a 8% HELOC for 10 months. If you want to compare sums, compare the interest accrued by the mortgage complete with ten $1037.03 prepayments over 10 months, vs. the interest accrued by the $10K-lighter-mortgage *plus* the $10K 8% HELOC to be retired over that same 10 month period with the same $1037.03 payments ($10K @ 8% amortized over 10 months).
Do those simple sums if you can, and see why your “How is 8% cheaper than 6%?” reasoning is weapons-grade stupid. There should be consequences for offering such bad advice. Here are my suggestions:
First, because you seem to have published something on the subject of personal finances, contact your publisher and get it removed from sale. Now.
Second, make every effort to contact anyone who has bought your publication, and offer them a full refund and a sincere apology for not clearly labeling the book as “satire”.
Finally, go take any diploma, or god help us, any degree that you have earned in anything other than beekeeping, and send it back to the institution that issued it.
You are living proof that anyone can call themselves an expert in any field, with no backup whatsoever. Did you wake up one day and decide, “I think I’ll be a personal finance guru today!”? Tomorrow, please don’t decide to be a doctor, a crane operator, or a crossing guard.
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“What I do say is this system works. You say it doesn’t. Why can’t you say “it may work but it’s not for everyone”? Wouldn’t that be more fair? more truthful, Calvin?”
No, it wouldn’t. First, I have never said the “system” doesn’t “work.” It does “work.” The problem is that it doesn’t “work” the way you guys imply that it does. It isn’t really anything different than paying all your discretionary income to your mortgage and having a HELOC on standby for emergencies. You make it sound like the “system” is generating great savings. It’s generating savings on par with the coins you find in your couch cushions….for the price of the whole couch. The “system” is smoke and mirrors…hiding the fact that one is sending every spare penny they have to their mortgage to generate all the savins. THAT is the truth.
“If I borrow $100,000 from you for 60 days so I can pay cash for a property, then refi it afterwards for $150,000, taking $50,000 out (hypothetically…not discussing downpayments, percentages, etc.), I can afford to pay you 50 PERCENT interest! I’ll owe you roughly $8500 for using your money for two months, and pocket over $40,000. How is it POSSIBLE to make ANY money when borrowing at 50% and refinancing at 8%?”
Now you are really showing your ignorance. While $50,000 is 50% of $100,000, it isn’t a 50% interest rate. MMAers like yoruself LOVE, absolutely LOVE to compare percentages to interest rates. Interest rates are expressed in %, but half a pie is not equal to paying 50% interest on a pie. Those are two completely different mathematical concepts. Federal regulators have made it such that loan and savings rates MUST be expressed in annual percentage rates or yields to make things comparable…to stop people from doing EXACTLY what you are doing.
“Most people must engage both to improve their financial literacy and success.”
Absolutely. And you teaching finance is the blind leading someone with poor eyesight.
There is one, and only one way to pay ahead on your debt…that is pay more than the minimums. Funneling your money through a HELOC does not generate more money, at least not anything measurable. Your method is prepayments, it’s just a more complicated, less effetive way to do it, mainly because there are fees involved. One can easily do the math for free and get rid of the fees, but unfortunately for your side of things, rewards checking accounts have made the tiny benefits of an MMA moot. Simply using a rewards checking account can outperform your more complex system….with less risk.
Lin, your problem is you are either financially ignorant, or an outright fraud. Either way, no one should be listening to you, much less giving you any money.
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Hi Lin,
Just so you know, my definition of velocity of money was, although not inaccurate, included in jest as a response to your question to me and to demonstrate how irrelevant using such language is when trying to tell your clients how to pay their debt off more quickly.
Remember, pay more money than required to accelerate debt payment (cancel interest) or lower the rate of interest you are paying on the debt. Perhaps you should just say “pay more to principal”.
There is no similarity in principal to your 2 examples.
It would appear that you are mixing profit with interest in your purchase example. Do you mean that you bought a property for $100,000 and 60 days later it was worth $150,000? Great Buy! You paid 108,333 for principal and interest for 60 days, then borrowed 150,000 on day 60 and netted $41.667. with a $150,000 debt at 8%. Congratulations!!
Why didn’t you just borrow 150,000 on day 1 at 8% and give the seller $100,000. Now you have 50,000. on day 1. After 60 days you will have paid 2,000 in interest (150000 * .08 / 12 * 2) and would have netted $48,000. with a $150,000 debt at 8%. Bigger Congratulations!!!
Which would you rather have? $41,667 or $48,000
Do you still want to pay 50% for a short period of time?
Do you really want to pay down a 5.875% mortgage debt with a HELOC at 8.25%? Maybe if your tax rate is greater than 100%.
Lin, just present any example where you think that paying a low interest debt with a higher interest debt benefits your client and I will gladly present some better alternatives on this board at no cost.
Thanks,
Bill V.
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I find this rather fascinating. Two people who have expressed their opposition to the MMA based on its cost and its disadvantage over doing something you can do on your own have posted on another their willingness to fork over much more than $3500 to pay for something in the future that keeps increasing in cost every year when they could get it free if they understood financial strategy and public policy. And that cost is a heck of a lot more than $3500.
I see that many uneducated and uninformed folks have found in the MMA something that gives them a dream of better days ahead. The highly educated number crunchers are quick to accurately point out the errors in their logic, often in condescending tones. Yet at least two of them are just as uninformed about financial stratagem for a much costlier acquirement.
I never pay for anything if I can legally get it free. Don’t be a sucker for the MMA but don’t judge others if you do not live by those same standards. I was impressed that Joe could get 4 refis at no cost and come out ahead each time. I tried but I can’t make the figures work, Joe.
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Kevin,
Not much in that last post had meaning. Did you leave some information out?
Bill V.
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Bill: I erred by crossing blogs. For the two I was referencing there is meaning. I googled their names with the MMA and I see that they post in many places. Let it rest with the statement that if one is to talk about another not making sense about a financial decision like the MMA one must be careful not to post evidence of one’s own blindness in another area of financial planning, which they did.
I notice you said you are not a mathematician but you sure came up with some impressive algebra about the velocity of money. lol
For the record, I oppose the MMA but I oppose anything you have to pay for that you can get free. I wonder how many people on here who oppose the MMA are paying for a phone instead of using SKYPE, which is free.
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Kevin,
I’m not aware that I said that I am not a mathematician. You are probably crossing authors of statements as well. One does not, however, have to be a mathematician to to understand basic financial concepts such as the following:
If you want to pay your debt off more quickly, then pay additional money toward your debt.
That is exactly what MMA does but they are afraid to share that truth with their customers. I have no problem charging a fee for helping a person acheive their goals, but I do have a problem with people using terms that they don’t understand (velocity of money)along with deceptive language (heloc shuffle to cancel interest) to get money from uninformed folks who trust them.
MMA Agents, please put the following sentence in your front page advertisement:
“Please understand that our MMA software works as well as it does because it has the effect of directing you to apply every nickel of your extra net income every single month directly toward your 1st mortgage loan until your Mortgage loan is paid in full.”
Would that sentence affect anybody’s decision to Buy the software? It shouldn’t, because that’s exactly what the software does. Any objections, MMA agents?
Bill V.
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Ijust wanted to say that I am on the program also and it absolutely works!- the majority of people are not disiplined enough to ever do this on their own- the money saved on your house interest by far outweighs the fee spent to get started!- If you don’t believe it try it and see- the 3500.00 is fully refundable if your not completely sastisfied– Thanks
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BobK, no one said it doesn’t work. It doesn’t work AS WELL as doing it yourself. You are right – MMA is for the financially undisciplined, mathematically illiterate, and intellectually lazy.
Oh, the guarantee? You had better read it again. It’s not a satisfaction guarantee, it’s a performance guarantee. UFIRST guarantees MMA will do what it says it will do as long as you follow it’s directions and your financial situation doesn’t change, otherwise, too bad.
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BobK,
The $3500 is only refundable to an unsatisfied customer within the first 3 days. After 3 days, an unsatisfied customer will not qualify for a refund, and will not get one.
MMA sales are down 89% in 2009. 70,000 agents only sold 369 of them in November. The UFirst head office has seem multiple rounds of layoffs and many top executives have left, and have not been replaced.
UFirst is hurting, and is not about to refund any money.
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Hi Bob K
I suspect that you have not read many of the posts contained in this blog. You are probably better off not reading them, because, if you do, you will be very unhappy that you spent $3,500.00 for access to a web page showing you how to do something which you could have done better and for free.
Keep up the discipline of paying extra principal on your debt. You’ll save lots of interest.
Bill V.
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SCAM, SCAM, SCAM. OK, not a SCAM, but not something you need to drop $3,500 on. You can send me $2,000 and I will show you how to do it. You can do it by yourself and put the $3,500 toward your mortgage.
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Interesting stuff – I suppose. You guys should read “Crisis Economics” by Roubini and Mihm. Makes this whole discussion- pro and con – seem like an argument over whether to use a straw or drink from the cup.
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Kevin – I believe I’ve had another refi since your last post here.
Why “can’t you make it work” ? At zero point/zero closing, it’s worth doing even if the savings is .01%. So long as one ignores the new amortization table and keeps paying what they were before. I’m now on track to have it paid off in another 6.5 yrs, just about 20 from when we started. First 5 years we had a nanny, so budget was tight. 15 years of extra payments as well as maxing our retirement accounts and funding college (which is 6.5 years out as well.)
MMA is dead but I do respect people like Lin who can assign whatever meaning to a word they wish. My own fast payment system was based on the Flux Capacitor using a 25nm ( that’s nanometer) design.
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