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Money Merge Accounts

One of the latest financial offerings that has come to my attention is called a Money Merge AccountTM (MMA). This system offers that "Qualified homeowners using the Money Merge Account system can now potentially pay off their mortgage in as little as 1/3 to 1/2 the regular time – with little to no change to their day-to-day spending habits and without increasing their minimum required monthly mortgage payments."

Now you should first ask yourself this; where will the money come from? When you sign up for this plan you are instructed to open a Home Equity Line of Credit (HELOC), and to tap it at the outset, making a principal payment to your mortgage. You then use that month's income to pay back the HELOC, but pay any bills due back out of the HELOC. By my math, you will be gaining a better return on your average balance, as most people are now getting about 1% or less on their checking. So if your monthly income is $7,000, you might have an average balance of $5,000. By paying the $7,000 on your mortgage you might save $420/yr (at 6%) but only need to borrow an average of $2,000 at 8% or $160/yr, so you've gained $260/yr. Now, that $7,000 against the principle will save you over $40,000 at the back end, but you are still paying off that difference over time.

Any further gains must come from extra payments, from paying down that HELOC faster and tapping it again to make a pricipal payment. In fact, this is what United First Financial shows in their video presentation. But, contrary to any claims of "no change to spending", the video offers these details in their example; A couple owes $200K at 6% on their mortgage, has $5000 take home pay, $1000 of which is discretionary income. The software (MMA) directs this couple to deposit all $1000 into the HELOC which feeds the additional payments against the mortgage. Now, the regular payment for a 30 year payoff would be $1199.10, but at $2199.10, a mortgage would be paid off in 10.13 years. The video claims to have this mortgage paid off in 10.1 years. I don't know if the system picked up that .03 years or 11 days through the slight HELOC savings or due to rounding, but they did nothing that you could not do on your own. Watch the video and decide for yourself.

There are many variations on this approach, using different words such as "Mortgage Acceleration" or other variations on this theme. I am not suggesting that these plans are a scam or in any way fraudulent, only that one may pre-pay their mortgage on their own with out paying for such a plan. If there is interest, I will create spreadsheets to download that can help readers understand how mortgages are paid, and how you can pay off early.