Pay Off Your Mortgage In Half the Time?
Posted on March 1, 2008
Filed Under mortgage |
by markcreeten
Someone on a financial email list made a statement about paying off their house in half the time with a Money Merge Account. I had never heard of this type of account before so I contacted him about it to learn more. As it turns out, I would not qualify for it at this time but it is an interesting program and I thought I would share my thoughts on it, both pro and con.
The program that I am looking at is offered by United First Financial and their part of it is a software program that advises you when to make additional principal payments on your existing mortgage. You enter into the program by getting a HELOC (Home Equity line of credit) through a bank of your choice. You use this account to do what UFF calls interest cancellation.
A very basic idea of how this works is like this, you have an existing mortgage of 200,000 and you would take out a HELOC for $15,000. The MMA system advises you when and how much you should pay to your existing mortgage out of the HELOC to start off, the example that they use is approximately 10,000. You then use all of your income for the month to pay down your HELOC and pay your regular monthly payments and mortgage payments from the HELOC as well. As your discretionary income pays down the HELOC, the software prompts you for additional principal payments to your existing mortgage.
The United First Financial website and Doug have assured me that this software uses algorithms that took years to perfect and it cannot be duplicated by most of us mere humans. I would tend to agree that it would be way over my head as I am still trying to grasp the concept of using a loan to decrease your debt. However, the example on the website is impressive.
What I like the most about the software you won’t find in the example on the website but was provided in some training material that Doug sent me. The software has some interesting features that help you to determine what changes to your income or expenditures will have on your mortgage.
Let’s say that you decided to purchase a new car which would increase your monthly expenditures. You plug the amount into the software and it gives you the new date of payoff on your mortgage. Would you really buy that luxury car if you knew it was going to add 10 years to your mortgage and add 50,000 or so thousand in interest?
The software can also tell you what it will cost you in mortgage years and interest if you decide to take a job paying less money than you make now or if you or your wife are thinking about quitting your job. It goes so far as to warn you about how many months that you have before you have maxed out your HELOC in either situation.
Aside from the benefit of paying your mortgage off and saving hundreds of thousands of dollars in interest, I think it could be a useful tool for many people to plan their budgets. It definitely increases your focus on what effect your actions will have on your budget and that in itself could be a good thing.
The two major drawbacks that I see in it is the financial investment for the software itself although this is not an out of pocket expense. It still figures in to the bottom line.
The second drawback I see is the current financial situation. Many of the larger mortgage lenders are s which would make the software pointless. Chances are good that if you have enough equity to qualify for one, it would not happen to you but there are no guarantees. The HELOC freezes have caught some people short.
Some other posts related to Money Merge Accounts from around the web:
Is a Money Merge Account a Good Way to Pay Off Your Mortgage from Get Rich Slowly.
Money Merge Accounts: Are They A Good Deal for Home Borrowers? from The Simple Dollar.
Both have slightly different viewpoints on them and both have a great deal of comments. You can get more information on the Money Merge Account at the United First Financial website. Anyone out there have any personal experience with one? I’d love to hear from you.
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16 Responses to “Pay Off Your Mortgage In Half the Time?”
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I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you.
Tim Ramsey
acquiring more debt will not make it easier to get out of debt! Common sense can accomplish the same this software claims it can. However, if someone thinks that spending hundreds of dollars on budgeting software then getting thousands of more dollars in debt to use the software will help get them out of debt, perhaps they have no common sense.
@Josh - I admit that was my first thought as well but the scenario that is on the movie actually shows them paying off the mortgage early while spending no additional funds from the budget.
Nice post as are the others that you mentioned above. It’s unfortunate that people don’t “get” the long term implication of using this program. First of all it is impossible to do the calculations that tell you the optimal time or amount to pay on your mortgage. And that is critical.
If you use the example of a 30 year $200.000.00 mortgage @ 6%, with a payment of $1,199.00, if you put $5,000.00 on the principal the first year, that would reduce the interest owed by $28,304.00 and shorten the payoff time by 23 months, nearly 2 years. Where do you get the $5,00.00 from? Mattress money, cookie jar, tin can buried in the backyard?
If you had a HELOC at 12%, and I can find them for around 5% (the freezes on HELOC’s are being done by outfits like Countrywide and others who had poor practices in their lending operations. There are far more sound financial institutions who did not get caught in that situation), let’s look at what could happen. If you borrowed $5,000.00 from your line of credit, and the rate or amount of your HELOC doesn’t make any difference, applied that to your principal you would have the same savings of interest and time. What is the cost of that money? Since the kind of HELOC you want is one that is figured on the average daily balance (simple interest), this is the calculation. $5,000.00 x 1% (12% APR)= $50.00 x 12 months = $600.00. And let’s not even consider that we knocked 2 years off our payment time; and paid that for the full term of the loan, 30 years, then $600.00 x 30 = $18,000.00. We still saved over $10,000.00. That’s still an impressive amount.
Common sense tells me that if I can pay my house off in ten years or less and in the case of the $200,000.00 mortgage, save $231,000.00 in interest, then the cost of the software is this; 10 years x 12 months = 120 x 30 days (avg month) = 3600 (days) Then divide the cost of the software 3500 by the number of days 3600 and your cost is 97 cents/day. That is a ROI that’s pretty impressive. Calculate the savings of $231,00.00 against the cost of the software and the ROI is really impressive!
The only way to see if this makes sense for someone is to have a no cost, no obligation analysis run using your own numbers.
Using the same parameters of the $200,00.00 mortgage, here are some cold, hard facts. And if you have Excel you can run an amortization on the example. You find that on mortgages the interest is front loaded. That means you are always paying more interest than principal (at least until the 21st year). In the 5th year, and it’s important to remember the average homeowner moves or refinances every 5-7 years, you will have paid $71,946.00 and still have a principal balance owed of $186,108.00. You’ve only reduced the principal by $13,892.00. It gets worse. In 21 years you will have paid $302,173.00 to the mortgage company. A financial planner friend of mine calss a mortgage a “Death Pledge” that robs your retirement. Finally, after 21 years you actually “own” half your house. You now have equity of $100,123.00, but still owe $99,877.00.
There is so much more to this than has been talked about on any of the posts that I’ve read. There is a book, “Happy For No Reason” that showed a study that says the average human has 60,000 thoughts/day. 95% of them are negative. What’s wrong with it?What’s wrong with them? What’s wrong with me? If everything in your life begins with a thought, how are you spending your life?
Yes, these are some of the most critical times in this country’s. Especially for the majority of people who are faced with the economic realities out there. We have seen a 50% increase in personal debt in just the last 6 years. We borrow $1 Billion/day to buy oil. $1 Million is added to the national debt every minute. We have a %9 Trillion (and rising) National Debt. Of every tax dollar paid, 19 cents goes just to pay the interest on the debt.
I may not be able to do much about any of that, but if I can increase my positive thoughts by 5% that’s a 100% increase. If I can use a tried, true and guaranteed program to reduce my personal debt and take those savings and invest for my future, and share that with others, then I am helping with the bigger picture. The cost of Finacial Freedom is Eternal Vigilance! If it is to BE It’s up to ME! And all of us…
[...] S. tells you all about a way to pay off your mortgage early at Oh My Aching [...]
These accounts can save you heaps on your mortage, they are very common in Australia,(my loan is different though) I disagree though about feeling like you have to pay to get a program to tell you how to do it. It’s just more money that could be payed of the persons mortgage. There are lots of calculators around that can help people work this stuff out, people don’t need to pay someone to do it.
I agree that you could accomplish much the same thing with a HELOC and no software but there are not many people who have the discipline to actually do that on their own.
What I find interesting about these is that you are paying down your mortgage in half the time without increasing your out of pocket payments. So you still pay the same amount every month and still pay off your mortgage in half the time.
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“CindyS on March 8th, 2008 at 3:54 pm
I agree that you could accomplish much the same thing with a HELOC and no software but there are not many people who have the discipline to actually do that on their own.
What I find interesting about these is that you are paying down your mortgage in half the time without increasing your out of pocket payments. So you still pay the same amount every month and still pay off your mortgage in half the time.”
This is absolutely false! While you might be able to arbitrage the HELOC intrest for a few extra bucks, the only way the UFF system/scam works is through prepaying your mortgage.
The extra payments only come from your disposable income. UFF’s FAQs tell you: No disposable income, then the program is not for you. The HELOC arbitrage cannot generate anywhere near enough money to reduce your mortgage payoff time.
You can do the same thing, for free. Not only that you will pay off your mortgage faster than if you use the UFF system.
Don’t have the personal fortitude to do it? $3500 software is not the answer!
ive been using the MMA for almost a year now and so far things have been working great, no problems o_O
Adam Smith on March 10th, 2008 at 10:25 am
This is absolutely false! While you might be able to arbitrage the HELOC intrest for a few extra bucks, the only way the UFF system/scam works is through prepaying your mortgage.
The extra payments only come from your disposable income. UFF’s FAQs tell you: No disposable income, then the program is not for you. The HELOC arbitrage cannot generate anywhere near enough money to reduce your mortgage payoff time.
You can do the same thing, for free. Not only that you will pay off your mortgage faster than if you use the UFF system.
Don’t have the personal fortitude to do it? $3500 software is not the answer!
Adam, it’s clear that you do not understand how the UFF program works. You referenced one FAQ and basically that is true. If you have no disposible income, the prograsm won’t work.
In the real world, there are many, many ways to find disposable income within people’s financial situation. If you have $5,000.00 in credit card debt, making $150.00 monthly payments, it may be possible to roll that debt into the HELOC.
The patented, trade marked and proven software would then direct you to payoff the debt from the HELOC and would not prompt you to make a principal payment to your mortgage until the income you deposit into your HELOC (remember, the HELOC is an open-ended loan so you use it exactly like a checking account) has paid down the debt from the credit card. The net effect of that, as I see it, is that you have now freed up $150.00 which is now discretionary income. If you use your credit card to pay your living expenses throughout the month, and then pay off the credit card within the billing cycle, you are charged no interest. Plus, by doing that you have kept your HELOC balance as low as possible and that means you pay a minimum interst charge on the HELOC.
I’m not an accountant, but I’m pretty sure (having had HELOC’s), that since the loan is tied to your home, any interest is tax deductable. Last time I checked, credit card debt, car payments and similar debt is not tax deductible.
I find it intersting, Adam, that of all the information available on the United First Financial you chose to reference one item that you clerarly did not understand. And apparently decided you could then make the blanket negative statements as though you were an “expert”.
I work with financial planners who have found exciting ways for clients to free up money that can be used as discretionary income. The only way to find out if this program would work for an individual is to have analysis run. Until you do that or have first hand knowldge of this program, you are really in the dark.
I understand the UFF system very well.
I was responding to the claim of “paying your mortgage in half the time…without increasing your out-of-pocket payments”.
This is false. UFF tells you that you need to have extra income. However, many UFF salespeople have made the same false claims to which I was responding.
I have personally had my own situation run by two UFF salespersons, and I showed them how I could perform the prepayments myself. In both cases, I finished paying off my mortgage faster and far cheaper than paying $3500 for the UFF system.
Can people find extra money in their own budget to increase the payments to their mortgage. Sure, but that was not the issue. You can analyze your budget with any personal finance software or just a pencil and paper.
No UFF salesperson can present any numeric proof that the UFF system, given all the same numbers, that improves upon pre-paying your mortgage yourself. The examples in the UFF marketing materials can easily be demonstrated to be non-optimal/more expensive. The numbers that were run for myself where easily disproved. The UFF reports that people have e-mailed me can easily be shown to be sub-optimal.
Saying that UFF is a motivational tool is a weak argument. I’m only talking about the numbers. And the numbers say paying $3500 to purchase the UFF software is money not well spent.
I think the most important step is to be realistic in what you can and cannot do. I’ve seen so many first time home buyers jump into something they cannot afford only because they have big dreams.
It is unfortunate that most of us were never taught to follow three essential principles: (1) Avoid paying interest whenever possible, (2) Use other people’s money whenever possible and (3) Find and use a financial system that will guide you, especially if you have the tendency to go off-track. The Money Merge Account™ software and the program’s counselors use these principles to keep each homeowner focused on their wealth accumulation goals.
i think the uff is a ripoff who in their right mind would borrow $5000 from their heloc to pay down their mortgage. In the demo the couple had $1000 discretionary income simple when the software prompts you to borrow a huge chunk just send the $1000 or less keep your heloc balance low!!!
There is a site http://discovermoneymerge.com/dv/example which offers an example using money merge. Funny thing, by just paying down principle at the end of each month, a mortgage will amortize a bit faster, given that the UFF example starts with $3500 more to pay off. The use of HELOC saves nothing at all even in this website example trying to promote the product. I do understand the numbers perfectly, even how ‘in theory’ the HELOC should help the matter a bit, but not nearly enough to make a large difference. Too bad people are so confused by numbers they want to believe anything.
Joe