The agents for the Money Merge Account are focused on one thing, to sell their product. Here is one agent’s list of benefits and my response to each:
Here are the main benefits of the Money Merge Account for American home owners as I see it:
-They will easily be able to take 10,12 sometimes 15 years or more off their mortgage,
Ok. This is actually less dramatic than the claims of most agents who offer to cut a 30 year mortgage down to 9 or fewer years. And it’s as true as the fact that any aggressive prepayment of principal will offer similar dramatic reductions in the term of one’s mortgage. Once you understand the math, you find that at 6%, a 30 year mortgage is paid off in 15 by paying about 40% more, e.g. pay $1400 vs the $1000 that’s due each month.
-They will usually be able to save 100,000K or more in interest that’s robbing them of retirement or their life’s dreams,
Well, by paying more principal sooner, you save interest. The question is whether that choice is right for you. Are you swimming in cash at the end of each month? Most of us aren’t.
-They don’t need to raise their payment or alter their budgeting to do it!
This is the most blatant lie told by any agent. No, you don’t raise your payment, per se, but each month, you are directed to send money to the bank to pay down principal, it can’t happen any other way. Of course you alter your budgeting, it’s just masked as deposits used to pay back a HELOC (home equity line of credit).
-They don’t need to refinance their mortgage to do it!
Wow, great news, but nor does simply prepaying.
-In general they will increase their cash flow through an emergency reserve fund
Fine line between ignorance and a lie, I suppose. The agent may believe this, but think about it. You increase your cash flow by increasing your income (wages) or by reducing expenses. An ’emergency reserve fund’ is credit, not cash flow. Having a line of credit to tap is not the same as an emergency account.
-In general they will see their FICO score improve (mine has gone up 60 pts!)
Really? I see nothing in the description of how FICO scores are calculated to suggest this. In fact, by using credit cards to float one’s monthly expenses (as suggested by V4 of the MMA plan) one can find their score drops even if they pay in full each month.
-The software program will always figure out for them the shortest and safest way to being completely debt free, integrating every piece of their specific financial picture.
This is great. The premise in the classic MMA example is that one has $1000 left at month’s end from $5000 net pay. Now to show how sophisticated the software is, they will assume multiple credit cards, loans, etc. They can’t have it both ways. One with 20% of their net available each month doesn’t have all this other debt, and someone who racks up that debt doesn’t have the income to hack away at their mortgage. Either way, the approach is quite simple, pay your debts with extra payments going to the highest rate debt until it’s paid in full. This is so simple, you don’t need a pencil or paper just an understanding of how to line numbers up smallest to largest. Example – you should pay off your 18% credit card in full before paying extra principal to your 6% mortgage because 18 is larger than 6. Agents shout “you can’t do this on your own” but we all know better. Note – if it’s not clear to you that 18 is larger than 6, then MMA actually may be for you.
-They learn how to use banking products to their advantage, how to leverage the bank’s money at reduced interest, and how they can grow their wealth
From all I’ve seen/read/heard MMA teaches you nothing, it merely accepts inputs of income and expenses, and directs you how to shift money around. The examples I’ve seen that show any detail within a given month make it clear that MMA does not choose the most effective route to paying off debt, as it often carries a HELOC balance from month to month. The use of one’s HELOC can be beneficial, I’ll concede, but only if it cycles close to zero balance each month.
-With the software they also have a budgeting tool, and a financial planning tool (true cost feature) in their hands.
Excuse me – from United First Financial – “United First Financial does not provide financial or investment advice. Please consult your licensed financial planner.” Isn’t it strange that they offer a hard sell for a product presumed to help you financially, but they offer a disclaimer like this?
-Homeowners, will have a financial gauge or a financial dashboard for the first time in their lives, and will be able to see how their everyday transactions will affect the eventual payoff of their mortgage. This is why our clients are consistently 15-25% ahead of schedule across the board.
Prove it. The only clients I see offering an endorsement are those who just start and are prompted to send their entire cash savings account to their mortgage (making a stop in the HELOC, of course). They marvel at how their mortgage dropped by so many years and brag about the savings. But we don’t hear from that same person years later, why is that?
-This program is virtually risk free and comes with a money back guarantee!
Risk free? Hardly. See my post from last week. What happens when the HELOCs are frozen?
-We teach people how they can become debt free and create wealth on their current paycheck!
No, you take their $3500, and lag what they can do on their own. What the average person can save from the HELOC use isn’t enough to pay for the program, and without the HELOC, the program falls apart. It’s simply amazing to me that innumeracy is a problem so much greater than illiteracy in this country. Few agents really understand the very program they are pushing, and when confronted, will resort to a combination of name calling (I am a ‘nay-sayer’ in their lingo) and offering anecdotes unrelated to the math behind this product.
Until next time,
Joe