If you have not yet done so, please read part 1, part 2, part 3, part 4, part 5, part 6, part 7, part 8, and part 9 of this series first, then read on.
I received a number of emails after part 5 where I mentioned the HELOC use, but didn’t explain what MMAs claims are regarding this process. So let’s review the claims of the MMA agents.
While an honest agent will acknowledge that the prepayment of principal mostly comes from the paychecks of the home owner, many have managed to exaggerate the saving due to HELOC use and suggest that one can’t do this on their own. In the classic example, the client has $5000 worth of income, and $4000 in expenses. You’d imagine that during the course of an average month the client will see that their (0%) average monthly balance is as much as $3000, even though they may end the month with little sitting in checking. So what MMA claims to do is to borrow the difference ($2000) from the HELOC, depositing $5000 toward mortgage principal, and borrowing back from the HELOC as expenses arise. In theory, if the HELOC rate were the same at the interest rate on one’s mortgage, this strategy would create a rate of return on that average $3000 equal to the rate on the mortgage. But as I reviewed in my part 5 in this series, even if we assume the entire month’s income is available the whole month, the best we’d see from the HELOC use is $5000 x 6%, or about $300 per year. If we fall back to the $3000 average balance, the savings is just $180/yr. Not bad, right? But when we take the cost of MMA ($3500) and pay it off over the 10.4 year example, we find the annual expense to be $453/yr. For MMA to just break even would require an average checking balance (which for some odd reason is earning 0%) of $7,550. This would imply a monthly net income closer to $10,000 at a minimum. Nowhere else are these numbers discussed or disclosed. The latest version of MMA (V4) does take the claims to a higher level. The new software assumes another month’s float from the client using a credit card to charge every expense for the month, and use that float to pay toward the mortgage. Don’t fall for that either.
The agents promoting MMA manage to combine their own lack of understanding with a series of outrageous claims and take advantage of the average Joe not understanding how compound interest works. So far, in this series I have shown you the maximum amount you can possibly ring out of your ‘idle’ cash, and have shown how it’s a tiny fraction (a thousand dollars, if that much, vs the $164,000 in interest one can save) of the savings simply created by prepaying your mortgage with that same $1000/mo free cash flow.
Joe
Hi Joe,
Glad to find you. Read your posts on Tracy’s blog about UFirst’s MMA. I am one of the fools that forked over $3500 3 months ago. It was really a lot of work and input, and I started off all eager and ready to go, then found out my HELOC didn’t allow more than 5 checks to be written per month, and they had to be over $100, so I was told to use a savings account instead. Huh? Okay, I opened a “savings” account – which was actually another checking account – and lo and behold! No difference in payoff! How? I asked?! With smugness they answered, “It just does”. But you MUST have 2 accounts to go back and forth with. Why? You just do to make it work, they said.
That just added more tasks to do every month. Why would it make a difference to deposit funds from my checking account to the “savings” account, and then write a check from savings to pay bills? “It just does!” or it won’t work otherwise, I was told.
On top of that, I thought I was going crazy. The Action Plan would have a monthly schedule of transactions such as deposit paychecks to checking, transfer funds from checking to savings, pay down bills and mortgage with savings. I would execute in order the exact actions in the exact order in my Action Plan. Stuff that made sense – like deposit paycheck into checking account first, then deposit funds from checking to savings. However, when I would do the first item – deposit paycheck to checking account, the other previously scheduled transactions would disappear! Calls and chat to support would tell me to transfer funds from checking to savings first, THEN deposit paycheck into checking. Huh?
After 3 months of being rather frustrated and spending far too much time on the program, I asked for my money back. Very cheerfully, I was told I had a 3 day right to cancel when I first signed up. No refunds given, no satisfaction guarantee, just a limited guarantee that the product works, and the problems I was experiencing were because of I didn’t understand how to use the program, so please contact us for coaching. Have a nice day.
Well, they have messed with a menopausal alpha empty-nester pissed off woman. They are very good at putting up a stone wall – no way to contact the higher ups, no way to get a detailed 16 year payoff schedule (my projected time period), no refund, not even a partial one. I even requested a termination of the program – and they refused that!
So I am singing it from the rooftops, and I hope people hear. Don’t waste your money on the Money Merge Account!!! Use that $3500 as a huge principal payment instead! Or buy yourself a Bose home player and a wonderful music CD, and use the rest of the money to put down on as a huge principal payment! Do almost ANYTHING else with that $3500, but don’t waste it on a program from a company that doesn’t give a rip about you except take your money and NEVER give it back to you! Customer smatishfaction be damned!
Oh, and for anyone that has felt ripped off and been unsuccessful in getting a refund, file a report with the Utah Better Business Bureau. It might not help get your money back, but at least you can be a little black mark on their pretty looking company. It helps to feel less of a naive fool.
Sally –
It’s always great to hear from people, but I am so sorry to hear this. My view ever since I heard of this program and started to research how it works is “scam.” Yet, there are some who use it and are happy. I am currently in a discussion at a blog titled Bargaineering, which I linked here. If you want to share your story please join that discussion as well.
Tracy does excellent work, and I was honored to be asking to write a guest post there on the HELOC shuffle. In the end, it’s stories like yours that carry more weight, as not being a victim, I haven’t used the product. (On a side note, my mrs keeps the house at 68F, I understand where you are coming from)
I agree, but didn’t go there. If someone obviously in a higher tax bracket still wants to pay early, that’s their decision. I’d expect the next 10 years to average better than a 3.75% after tax return. But she also commented that she knew what she expected the market to do over the next century, so maybe not.
I have to say, I know there are good uses for insurance as part of overall estate planning, but I am not a fan of whole life, or any other permanent insurance. For some, immediate annuities make good sense, but an intelligent discussion is tough for me without seeing the prospectus. I’ll check out your Bargaineering comment.
Hey Joe,
I finally posted on Bargaineering. Colorado Mom is lucky, but knowing what I know now, I would suggest she use her money in other ways, not just plugging it into paying down her mortgage.
She is only paying 5% interest – except the killer is the minimum monthly payment which never changes no matter if the amount owed gets lower and lower, and is only gone after the loan is paid off.
I also have a change of direction in our financial planning. The MMA basis is that debt is bad. Bad debt such as credit card debt is bad. Debt can actually be good, if you take advantage of it. Paying off mortgages is not taking advantage of it. It is lost opportunity. It builds up equity, but equity sitting around does no good except give most people peace of mind.
Reading many books. Have you heard of the infinite banking concept using participating whole life insurance policies? R. Nelson Nash wrote a book on it.