With mortgage rates at or near all time lows again, it’s time to consider the ongoing question, do you choose a 15 or 30 year term? The 15 can be the way to go, especially if you are in your late 30’s or older and have a goal of having no mortgage at retirement. More than that, you’ll get a rate about a half percent lower which can save you some money as I show in this example:

As you can see, the payment required to cut the term of your mortgage in half jumps by just over 40%, all of this extra money going to principal. Another approach you can consider is to take the 30 year term, at the slightly higher rate, and make payments for a 15 year payoff. You need to look closely at your finances and your own risk tolerance to make this decision:

• Is there room in your budget for the higher payment?
• Do you have any credit card debt you carry month to month?
• Are you paying any other installment debt (car, boat, etc.)?
• Are you depositing to your 401(k) at least to capture the full match, if available?
• Do you have 6 months or more of emergency money set aside?
• Are you and your spouse secure in your jobs (as if such a thing is possible these days)?
• Are you expecting a child in the next few years and will lose some income during that time?

For many who are just moving into a house, it’s a better choice to take the thirty year, beef up your financial position, and then begin accelerating your payments. This isn’t rocket science, no complex math, just make extra payment each month to principal, and make sure the back is crediting it that way. For those who are paid bi-weekly, when you see that third check in a month (this occurs twice a year) you may use that money to pay down the mortgage. Another approach, if your retirement savings is on track, is to take half your raise and use that as your pay down money. The idea of having no mortgage is very appealing, but there’s one risk to consider. So long as you have a payment to make, that expense is still there. If I lost my job before the mortgage is paid in full I’d still prefer to have a well funded emergency account vs a mortgage that’s five years from being paid off.

One goal to consider is to pay at a rate that will have your mortgage paid off before you retire. My personal goal is ten years, so with that payment gone, we can reevaluate our retirement savings and increase to a higher level if needed. Or if we feel comfortable retiring early, at least that monthly payment will be long behind us.

Joe

• Money Merge Account Analysis Pt 9
• Year End Tax Tips
• Money Merge Account Analysis Pt 24
• Money Merge Account Analysis Pt 19
• Money Merge Innumeracy

• Accelerated Bi-Weekly Mortgage Payments
• Refinance or not?
• Five Tips for Tightening Your Budget
• How to be a Money Strategist to Reach Your Financial Goals (Part 2)
• A credit card for debt reduction

written by JOE \\ tags: Finance, Mortgage, Savings

There was a time when people actually paid their mortgage off, burning the paperwork in celebration of that final payment. But the times seem to be changing. As recently as 1992, only 18% of Americans 65 to 74 had any mortgage remaining on their house, but by 2007, that number rose to 43%. There are many reasons why I’m not sporting a “mortgages are evil” bumper sticker. They are a necessary tool to buy a house which will typically cost 2-3X one’s annual income. If you buy a house by your early 30s, you’ll be through paying by your early 60s. That is, if when you move or refinance to a lower rate, you don’t continue to get new 30 year mortgages.
For some, the aggressive paying off of the mortgage, to the exclusion of nearly everything else, has them sleeping better. I think balance is important. Saving tax deferred in one’s retirement account, building an emergency fund, enjoying life. All these should come first. For myself, at 46, I have just over 7 years left on the mortgage, and 8 years before my 10 year old enters college. So, in theory, she graduates when I am 58, and I have the choice to retire or start a second career.
With the mortgage payment usually the highest chunk of one’s budget, I’d not want to get too close to retiring without knowing that payment is behind me.
Joe

• Credit Default Swaps (Explained)
• Fun with Schedule A
• Reading other PF bloggers
• Money Merge Account Analysis Pt 33
• Latest on Flex Accounts

• Preparing to Refinance
• what my grandparents taught me about money
• Year End Retirement Planning Steps
• Getting a 15 or 30 Year Mortgage: Which One Makes Sense?
• The Conclusion To My Mortgage Refinancing Journey

written by JOE \\ tags: budget, emergency fund, mortgage payment, mortgages

I’ve used the term Innumeracy here to describe the equivalent to numbers what illiteracy is to reading. However, I now seek a stronger word or phrase to describe the egregious claims I’ve run across. I’m leaning toward “numerical blasphemy,” but am open to suggestions.

A Money Merge Account agent sent me a link to a You Tube video titled Truth in Lending. The author wanted to illustrate the concept of “front-loaded” interest on a 30 year mortgage. I’ve never seen a post that started with that idea end in anything that made sense, this video was no different. The video itself was well done, nice animation and voice over, but the numbers soon fall apart. I’ll offer two screen shots that show this.

As this slide came up, it seemed innocent enough,unfortunately it ends incorrectly. When working with a financial calculator you need to be very specific. N is not the number of years but number of payments, in the video’s example, 360. PMT, the payment, can be positive or negative depending on the calculator. Excel looks for it to be negative, a classic TI BA-35 calculator, positive. PV is not the equity built, but the present value of the mortgage, starting at the borrowed amount, and of course, ending with a FV (future value) of zero. He then says Compute, but there are two variable missing, %i (the interest rate) as well as FV. So, while I have no idea what his intention was, he now suggest taking I (the interest rate, I suppose) and dividing by Y (years, but why?) to produce a number which is admittedly large but meaningless.

Here, you can see that he author suggests that somehow the interest rate over 15 years is over 24%. But, back to a calculator or spreadsheet, we can see that PV = $200K (original loan) i = .5% (monthly rate or 6%/12) N=360 months (30 years) FV = 0 (after 30 years it’s paid to zero. If we enter these numbers we can comput the missing variable, the payment, which is $1199.10. Then it’s simple to set N to 180 (year 15) and compute the new future value, $142,097.69, as he shows above. On the other hand, we can enter PV =$200K, i = .5%, PMT = $1199.10, N=180 and FV = $142,097.69, and ask to calculate the rate, which of course comes back as .005 or 6% per year. By the way, it’s easy to look at the interest column above and divide say, the 2021 interest into the prior year ending balance and see you get under 6%. A couple hundred video views and no one saw how silly this all was?

As far as front loading is concerned, there’s nothing diabolical in how mortgages are calculated, you owe interest on the principal outstanding at any given time. Since you owe far more in the early years, more of your payment is interest. On this example $200K mortgage, in the first month the interest is $1000, but the principal paid is only $199.10. Pay more if you wish, that’s your decision. But don’t fall for an abomination of bad math. What does this have to do with the Money Merge Account? Only that every time I see numbers abused this badly I’m reminded of my friends at UFirst and the MMA.

Joe

• Money Merge Account Analysis Pt 1
• Money Merge Account Analysis Pt 31
• Money Merge Accounts
• Money Merge Account Analysis Pt 13
• Money Merge Account Analysis Pt 14

• Preparing to Refinance
• Fixed Term Investment Characteristics
• Introduction to Mortgages pt 5 of 5
• Picking Out The Best Mortgage for You!
• When to Refinance

written by JOE \\ tags: 401(k), Credit, credit card, emergency fund, equity line, faith based mortgage acceleration, Finance, HELOC shuffle, interest, interest rate, interest rates, irs, mma, money, money merge account, Mortgage, Retirement, stock market, Subprime, tax

My regular readers will recognize this is a post regarding the Money Merge Account, an expensive mortgage accelerator I consider to be a scam. New readers should note, this was part of a series confined to a weekly Thursday post, and today this series ends as my intent is to provide a variety of articles well beyond this one issue. Now for the last MMA post…….

Well, I found this in my draft folder, seemed a waste to delete it:

I offer one agent’s rants, and my response:
“Yes, you might be able to do this kind of interest cancellation without the use of the software only IF:
1. you have the financial discipline and mathematical skill
2. you have the right kind of ALOC
3. you are willing and able to account for every penny at all times
4. you can tally all the variables and refigure your financial position each and every day
5. you can do this day in and day out for 5 to 10 years
6. you can do this without personal support if something goes wrong or you get confused
7. you are willing to forfeit tens of thousands of dollars in monetary gains in addition to doing all the work all by yourself.”

My response:
1. One need to write the checks regardless, the discipline is no different with or without this program. There is no mathematical skill required. If you can balance your checkbook, you’re all set.
2. The right kind? The “HELOC shuffle” provides little benefit and more risk than any agent understands.
3. Every penny? Hardly. This is just a scare tactic. You see, MMA with all its claims falls short by many dollars per month, adding up to quite a bit over the years. Skip MMA entirely, and now you’re watching those pennies.
4. Paying off your mortgage early is no more complex than paying extra toward your principal each month. The secret is…. there’s no math involved, just those payments. A spreadsheet or calculator will let you calculate the days until it’s paid in full, but MMA doesn’t add any value any more than a tape measure helps your child grow taller by frequent measurements.
5. I have better things to do with my time, so do you. It will take you a few seconds to make the extra payments at month end. You decide, do you really want to have to report every penny every night to your computer, and achieve worse results than you can on your own?
6. Per UFF disclaimer, they will not offer you any mortgage or financial advice, you want support, UFF isn’t going to be much help.
7. MMA costs you both time and money, doing it yourself will save you both.
Now, I think I’m done, the draft folder is empty. I will update the PDF to include the last set of articles in this series.
Joe

• Money Merge Account Analysis Pt 26
• Money Merge Account Analysis Pt 15
• Money Merge Account Analysis Pt 14
• Money Merge Account Analysis Pt 9
• A Sunday PF Blogger's Roundup

• King set to be unleashed on Europe
• So, where do you keep YOUR money?
• Free College Money Part 1: Starting with Pennies
• Property Taxes and the Paid-Off Mortgage
• RCDL Roundup - Eggnog and Carols

written by JOE \\ tags: 401(k), Credit, credit card, emergency fund, equity line, faith based mortgage acceleration, Finance, HELOC shuffle, interest, interest rate, interest rates, irs, mma, money, money merge account, Mortgage, Retirement, stock market, Subprime, tax

Last week, I hinted that it was time to move on, and this will be my last regular post regarding the Money Merge Account scam sold by UFirst agents. A few reasons. After 30 weeks of non-stop analysis, there’s simply not too much left to say. I believe I’ve covered most aspects of the (bad) math used, the tactics agents use to promote the program, and the alternate ways to pay down your mortgage if that’s what you’re goal is. Those who seek an alternate not so objective view, the opposite of the agents pushing it, are welcome to read through my postings or download the PDF summary, which I will bring up to date. I’ll continue to discuss my thought on mortgages in general and take questions on the topic. I realized over the last few weeks that my time was better spent bringing articles to my blog for a more general readership, and to focus less on just one scam. For more discussion on MMA, there are a number of ongoing comment threads, including at The Simple Dollar, The Fraud Files, Bargaineering, and ActiveRain. So long as there are desperate people seeking solution to some kind of problem, there will be those who are happy to separate them from their money. The battle continues, I hope I helped save some readers from throwing their money away.

If something major happens which is worth sharing, or if someone offers an interesting guest post, I’m open to posting another installment in the future. Caveat emptor.

Joe

• Money Merge Accounts
• Money Merge Account Analysis Pt 20
• Money Merge Account Analysis Pt 9
• Money Merge Account Analysis Pt 7
• Money Merge Account Analysis Pt 4

• Money Hacks Carnival #1 at Prime Time Money
• Please Vote Again to Support My Charity
• Money Quote Friday - What Wallets Are For.
• Sunday Money Madness - Happy New Year!
• The Difference Between Good Debt and Bad Debt

written by JOE \\ tags: 401(k), Credit, credit card, emergency fund, equity line, faith based mortgage acceleration, Finance, HELOC shuffle, interest, interest rate, interest rates, irs, mma, money, money merge account, Mortgage, Retirement, stock market, Subprime, tax

Part 30? Wow, it seems like yesterday that I started this series. The good news from where I sit is that UFF has a defector problem. You see, any MLM (multilevel marketing) sales requires a serious dedication to recruiting new salespeople. I guess it’s tough to sell a $3500 piece of software that has you in debt a bit longer than simply prepaying on your own.
Back in October I wrote about a mortgage broker who was a client of Jubilee (Jaime Buckley’s company) and he was happy with his purchase, but didn’t understand how interest worked, despite the fact that he is a mortgage broker himself. If a broker doesn’t understand, what chance do most people have but to believe the claims of a scam artist? Funny thing, though. Jaime and his friends at Jubilee have already moved on to their next deal. I don’t have all the details, but instead of MMA (Money Merge Account), it’s now a MCA (Mortgage Checking Account.) I trust it has ‘factorial math’, ’sophisticated algorithms’, etc, but is different than the UFF product. As Jaime owned and moderated the UFirst Forum, I wonder if he’s going to pass the torch.

It will soon be time to move on, I believe I am close to exhausting all my thoughts on this topic. The math is simple, the product is a waste. The arguments in its favor quickly turn away from numbers and logic, to long rants about anything but. Until next time.

Joe

• Money Merge Account Analysis Pt 20
• Money Merge Account Analysis Pt 15
• Money Merge Account Analysis Pt 5
• Origins of the Meltdown
• Money Merge Account Analysis Pt 9

• Needs and Wants in Household Budgeting
• How we paid down our debt and saved money at the same time..it can be done!
• Is a Brokered CD Worth the Bother?
• Is Cash Still King?
• Naming a Trust as Beneficiary of an IRA

written by JOE \\ tags: 401(k), Credit, credit card, emergency fund, equity line, faith based mortgage acceleration, Finance, HELOC shuffle, interest, interest rate, interest rates, irs, mma, money, money merge account, Mortgage, Retirement, stock market, Subprime, tax