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i am reading about these new money merge accts that are supposed to take off yrs of your mortgage payments and save you tens of thousands of dollars by reducing your debt and the interest on your mortgage.
i have an mba and it is too complex for my mind...anyone heard of this and does it work? anyone?
I haven't heard of this yet, I'd be interested to see what it's about as well. So many 'programs' out there right now, due to mortgage mess. So many scams!
Back when I had a mortgage I participated in a program where 1/2 of my payment was made every 2 weeks. It was supposed to pay the note off 7 years early. I sold that house and have not had a mortgage since.
They are becoming very big in this area. I probably have at least one former realtor/mortgage broker turned money merge advisor call me every week to tell me how I should be offering it to my clients. I have no idea if it works or not, but it sure seems like some sort of Ponzi scheme to me. At networking events all I ever hear about is how much money you can make if you start "distributing" the money merge software and recruiting new sales reps to work under you.
Back when I had a mortgage I participated in a program where 1/2 of my payment was made every 2 weeks. It was supposed to pay the note off 7 years early. I sold that house and have not had a mortgage since.
Regarding the "Bi-weekly" payment, it won't really benefit you unless your loan will re-amortize every two weeks. Very few lenders do this. So, the benefit if they do is that you're charged interest on what you owe.... so if you're paying a portion two weeks early your interest charge will drop by a smidge...the later into the amortization schedule you get the more effect this will have.
In addition, a bi-weekly payment done religiously would create a full extra payment for the year, a 13th payment. This of course helps pay your principal down. However, if it's not done properly the lender could put it into an escrow account and not apply it to your loan until the payment is due.
So, if you want to pay extra in this way... you first must find out if the lender re-amortizes the loan every two weeks (very rare). So if they don't you can either send a separate check each month and be sure it's applied to principle, or just send one extra payment yearly, and be sure it's paid to principle.
Regarding the actual post
I'm in the finance side, and I have seen DVD's and presentations on this money merge thing. I personally have not had the time to invest into it, and it's pushed on us as a whole extra product to sell. We would get paid a small commission if we were to get our clients to do it.
With that said, I'm very well versed in mortgage, and I personally thought it looked very promising and looked like it would work. Like anything that is out of the norm, you would want to do some detailed research into it before you risk the biggest investment of your life.
If I remember the details, here's the basic skinny of it... you get a credit account, sorta like a home equity line of credit... you put all of your income into this credit line, then pay your bills out of it. The money helps pay the interest on your mortgage line... or something like that. The theory appears sound, and it's a neat idea... I just never took the time to really get a grasp of it.
backtofla,
Money Merge people are getting HUGE here in orlando, I'm surprised you haven't heard of it yet. I actually attended one of their "seminars" almost 8 months ago now. I signed up to re-sell, but have been to busy working on other things to do anything with it.
It's a complicated as heck concept, that is anti-intuitive, but really does make sense when you think about it. I hate the way they go about marketing it though (very pyramid scheme like) and it attracts all the "make a quick buck" fools, and that really turned me off just because I didn't want to be associated with people like that, I think the company itself is on the up and up though.
I don't have the time right now to type out how the thing works, but I should have some time by the end of the day and will post up the concepts if no one else does it first.
I just spoke about this today with someone and the concept UserJeff notes is what I was told with the idea being you are earning more money on your income then you would in a basic checking account. The question, I asked was how do you get the tax right offs for the mortgage, etc.
My understanding this is very common in Aust, New Zealand and London.
greg, yes please if you know how it works and IF it works, please inform. thanks.
i understand the basics (open heloc, put your paychecks into it. also pay bills with it. it is an open-ended acct, and everytime you put your payckecks into the mma acct it is reducing the principal). but, how about my debt that i roll into this mma acct? how is that paid off? and how soon? we got vehicles and credit cards to pay off, and i cant have anything messing up my almost perfect beacon score. you know? is this affected? how do you pay off the heloc, or do you know have to pay back what you dont use?
greg, yes please if you know how it works and IF it works, please inform. thanks.
i understand the basics (open heloc, put your paychecks into it. also pay bills with it. it is an open-ended acct, and everytime you put your payckecks into the mma acct it is reducing the principal). but, how about my debt that i roll into this mma acct? how is that paid off? and how soon? we got vehicles and credit cards to pay off, and i cant have anything messing up my almost perfect beacon score. you know? is this affected? how do you pay off the heloc, or do you know have to pay back what you dont use?
I haven't sold the product to anyone yet, and I know of no one personally that has been on the account...So don't know IF it will actually work but the concept seems sound.
Since you know the basics i won't go into the details you already know. As far as the debt you roll into the MMA acct, there are always pros and cons. The whole system works better with higher cashflow and disposable income. By paying off your credit cards, vehicles etc, you are in essence eliminating the required monthly payment for these and freeing up additional disposible income. (by putting your paycheck directly into the MMA account it counts as the minimum required payment so in essence you have no real monthly payment)
By having more disposable income going into the MMA you are supposed to be paying down the balance quicker.....remember just because you have the free'd up cashflow you are not supposed to increase your spending, the program only works if you are making more than you spend everymonth, and keep your spending habits in check. (basic sound fiscal policy anyway)
You pay down the balances like so....say you have a 20,000 balance on the MMA/HELOC, you make 1000/mo and spend 950/mo. January 1 you get paid, and you deposit into the MMA/HELOC the balance is now 19,000, so you are saving X% in interest on that 1000 (what they call the Interest cancellation effect). You pay your expenses as they come up throughout the month and the balance rises gradually, but by the end of the month all your expenses amounted to 950, so now your balance is 19,950. and this continues until the balance on the HELOC gets low enough, and the MMA program tells you to take a lump sum out of the HELOC and pay it toward your first mortgage.... technically saving you 2-4 times more in interest than what you just paid off. The program starts being worth it's while once you get that HELOC balance low enough and start using it to co-ordinate when the best time is to take money from the HELOC and put to your first mortgage. By using it like your checkng account the interest rate on the HELOC almost becomes a mute point as the EFFECTIVE interest rate is lowered significantly (like by 80-90%)
How paying off cars, CC, boats and other monthly debts helps is this....you still make 1000/mo and spend 950/mo for ALL of your living expenses...say $200 of that 950 is to CC and car payments. By paying off those debts your monthly out go is now only $750. So now you are paying off that HELOC balance by $250/mo instead of only $50/mo, it speeds things along. A big negative to this though is that if you default on that debt now, you can lose your home. NO you are not now paying those debts off over 30 years, you are not changing any of your spending patterns so that extra $200/mo is going to pay off those loans (now in the balance of the HELOC). The big deal is to have the extra disposable income, as the higher that # is the more the "interest cancellation" effect is seen.
You can implement this concept without the help of the $3500 computer program they sell, but once you get that HELOC balance low enough and start taking money from your 9% HELOC and putting toward your 6% first mortgage is where it gets tricky...making sure that higher interest balance is at the right level, and being able to calculate what best to do when expenses vary from month to month and if something unexpected comes along and you must take money out of the HELOC to pay them.
There are also other little tricks to up your monthly disposable income like eliminating your escrow account and paying insurance and taxes in one lump sum at the end of the year. And using a 0 balance Credit card to put all your monthly expenses on....pay it off before interest is charged at the end of the month and utilize that free money float. The program can be customized to take into account lump payments on certain dates, which helps significantly in saving the user $. Again only the person that REALLY knows how the program works should attempt this stuff though.
Whew....ok so bottom line, I think the program will work, but only for those people that are already in a good position, if someone is in over their head this program will only hurt them. Is it worth $3500? I don't know, if it's accuracy is so much better than following a simplified plan you come up with yourself, that it saves you that extra $3500 of course it's worth it. I think the average (or even above average) consumer wouldn't have the time patients, expertise, or discipline to put together a plan of their own, that works, and can re-calculate unexpected income and expenses....at all, much less as accuratly as the program probably can. I know if I ever take the leap and decide to pay off my mortgage quickly, I'll be trying it out.
For those that are wondering what happens to their tax deductions as they pay off their mortgage, you will still be deducting the interest you pay on both the first mortgage and the MMA/HELOC. That deduction should dwindle though as you are paying less and less in interest over the years.
I'm in the camp that would rather save $1.00 in interest than save $0.32 in taxes. However at some point (like when my LTV is below 50%) I'd start considering taking money out of my house at X% and invest in something that may make me X+y%.
I also know many people that say NEVER pay down your mortgage, maximize your tax deductions and take your disposable income and put it in the stock market and make a higher rate of return than what your paying on your mortgage. I agree with this strategy personally, but I'm younger and more risk tolerant. Paying off your mortgage is a 100% way to save X%. There are no guarantees in any investment, except CD's and treasury bonds, both of which i'm sure you aren't getting more interest from than your paying on your mortgage.
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