It is NO secret that I am a huge fan of the various Mortgage Acceleration programs that are now becoming increasingly popular especially the method of the "Money Merge Account" promoted by U1st Financial
I found a great article on Bankrate giving a very detailed break down of 2 of the more popular institutional level Mortgage Acceleration programs available offered through CMG financial and Macquarie Asset Manager.
The one major difference between the above mentioned institutionally available Mortgage acceleration programs and the Money Merge Account offered through U1st Financial is that the above products are based on a first position HELOC as opposed to a smaller second position HELOC.
Having an entire first position HELOC greatly increases the interest rate exposure to you because of the variable nature of a HELOC. It also greatly reduces the ability to accelerate your mortgage. Especially now since most HELOCS are tied to Prime which is currently at 8.25%
The Money Merge Account as offered by U1st Financial advocates a smaller second position HELOC that accelerates you current first position closed ended fixed mortgage while keeping the total draw of the HELOC at a constant minimum so as to not be hit with a volatile rate exposure.
A different type of mortgage, called a "mortgage accelerator" loan, has migrated to the United States. It uses home equity borrowing and the borrower's paycheck to shorten the time until a mortgage is paid off, saving tens of thousands in interest expense.
Not to be confused with a biweekly mortgage loan that shortens a mortgage by paying an extra mortgage payment once a year, the mortgage accelerator loan program is based on an approach common in Australia and the United Kingdom, where borrowers deposit their paychecks into an account that, every month, applies every unspent dime against the mortgage loan balance.
In Australia, more than one-third of homeowners use a mortgage accelerator program. In the U.K., it's about 25 percent. In the U.S., the two firms currently offering these mortgages are Macquarie Mortgages USA, where it is called the Macquarie Asset Manager, and CMG Financial Services, whose offering is called the Home Ownership Accelerator.
The premise is that borrowers finance a new property or refinance existing property using a home equity line of credit, or HELOC. Borrowers then begin directly depositing their entire paychecks into the HELOC. Monthly expenses, other than mortgage payments, are funded by draws against the line of credit, whether that is by using bill pay, check writing, ATM withdrawals or a credit card tied to the line of credit. Even if you don't wind up making additional principal payments in a month, you still capture some interest savings because your average balance is less than it would have been with a conventional loan.
Example As a simple example, let's say your mortgage payment on a conventional fixed-rate mortgage is $2,000 and your monthly net income is $5,000. With the mortgage accelerator, even if you spend the $3,000 difference, your average mortgage balance for the month is $1,500 less than it was with the conventional mortgage. That's because the entire $5,000 is deposited in the loan account and you made draws of $3,000 for living expenses spread over the month. At a 7¾ percent loan rate, that saves you about $10.00 in interest expense that month.
Now $10 here and $10 there does add up over time, although both loan programs have annual fees of $30 to $60, but the accelerator part of the mortgage lies in having all your net pay going against the mortgage and an assumption that you have positive monthly cash flow -- meaning you don't spend as much as you make. The simulation calculator on the CMG Web site has stock assumptions that you have 10 percent, 20 percent or even 25 percent of your net pay leftover each month that you can apply to your mortgage balance. The Macquarie site has its own simulation calculator.
Not for the financially indisciplined. Of course, all borrowers already have that money available with a conventional mortgage, too -- and without the cost of refinancing. A borrower would simply need the financial discipline to use all that money as an additional principal payment.
For the indisciplined, the mortgage accelerator program makes the additional principal payments automatically. That's the real hook to this program -- unless you spend the money by drawing against the line of credit, your paycheck goes toward paying off the house.
Where a mortgage accelerator loan program gives the homeowner additional flexibility, however, is in having the line of credit available if there is an emergency need for cash. Make additional principal payments on a conventional 30-year fixed-rate loan and you can't borrow that money without taking out a home equity line of credit or home equity loan. With the mortgage accelerator program you already have the line in place. That gives homeowners confidence that they can be aggressive in repaying the loan and money will still be readily available if a financial emergency crops up.
Homeowners could cobble together a payment plan similar to a mortgage accelerator on their own by taking out a conventional HELOC, but a mortgage product specifically structured for this approach to consumer finances has some advantages.
Some of the product attributes of the Home Ownership Accelerator and Macquarie Asset Manager are shown in the following table.
Accelerator mortgage comparison
Macquarie "Asset Manager" loan
CMG "Home Ownership Accelarator" loan
Loan type
first lien HELOC
first lien HELOC
Index
Prime 1-month LIBOR
1-month LIBOR
Direct deposit of income required
No
Yes
Deposits/ payments
Funds transfer "to" (ACH Credit)
Funds transfer "to" (ACH Credit) Funds transfer from (ACH Debit) Direct deposit Wire transfer to account Bank by mail
Withdrawals
Checks
Checks ATM (STAR\CIRRUS network, 8 free\month) VISA point-of-sale card Online bill pay
Life cap
21%
5% over initial rate
Minimum FICO score
660
680
Maximum debt-to-income ratio
45%
48%
Sources: CMG Home Ownership Accelerator comparison chart, Macquarie Asset Manager flier, MGIC Insight Features (March 2006)
Mortgage accelerator loans have interest-only minimum payments during the first 10 years -- although that goes against the idea of paying off your mortgage as fast as you can. After 10 years, the line of credit decreases by 1/240 each month over the remaining loan term (20 years x 12) forcing principal repayment until the loan is paid off at the end of the loan term.
Another argument for this approach to financing is that your idle cash is saving you the mortgage interest rate versus earning a low passbook savings rate. While short-term investing alternatives that pay higher rates do exist, the savings are automatic with the mortgage accelerator program.
A HELOC is a variable rate and the interest rate will fluctuate with changes in the underlying pricing index. Lifetime caps limit the homeowner's exposure to higher interest rates with the Home Ownership Accelerator limiting that risk to 5 percent over the start rate as a lifetime interest rate cap. The Macquarie Asset Manager loan program has a lifetime interest cap of 21 percent.
These loan programs aren't available in all 50 states. As of November 2006, CMG's Home Ownership Accelerator program is currently available in more than 20 states and Macquarie's Asset Manager program is available in about 24 states with availability in a half-dozen more states on a correspondent lending arrangement.
Brooke Barnett, "ownership accelerator specialist" at Rancho Funding, a San Ysidro, Calif., mortgage broker that offers the CMG loan program, sees this loan program as ideal for financially savvy homeowners who are spending less than they make each month.
The savvy part, being able to earn the mortgage interest rate on idle cash instead of the low rates paid on checking and savings accounts, attracts customers that take a big-picture view of their finances. Money that isn't going toward expenses is reducing the balance on the mortgage, and by doing that, reducing the interest expense.
Barnett suggests that a Home Ownership Accelerator loan could also be used in lieu of taking out a reverse mortgage on a home. With enough equity in the property the homeowner could avoid minimum payments over time using negative amortization up to the amount of the HELOC.
While these loans are HELOCs, they are also first mortgages on the property, so the closing costs are about equal to the closing costs on a conventional 30-year fixed-rate mortgage. Like any refinancing decision, closing costs are a factor, and the longer you plan to be in the house the easier it is to justify refinancing your mortgage loan.
The lenders expect homeowners to be less rate sensitive about these accelerator mortgages because of the interest savings available by using the program. The product is new enough in the U.S. market that it will take some time to validate that expectation.
Interest savings are still available the old-fashioned way by making additional principal payments on a conventional fixed-rate mortgage. Bankrate's mortgage payment calculator allows you to make additional principal payment assumptions on your mortgage and you can then compare the interest savings with the results of the simulation calculators offered by Macquarie and CMG, although the CMG simulator will allow the homeowner to input a prepayment assumption on the existing mortgage in comparing it to the equity accelerator mortgage.
Don Taylor, Ph.D., CFA, CFP, holds a doctorate degree in finance, is an associate professor of finance at The AmericanCollege and writes the "Ask Dr. Don" column for Bankrate.
O.K., I will keep preaching the benefits of this type of program and how it can be a good option for a wide variety of borrowers and in a wide variety of situations. With this Being said I would like some "Honest Debate" about this program from people who truly understand everything this type of program offers based on all the listed benefits below:
The beauty of the Money Merge Account is that it can benefit different people in different ways. Choose an option below to see how the Money Merge Account can help with different needs and situations.
Repaying your mortgage early When repaying a mortgage, it's not the rate you pay that's most important. What matters is the total amount of interest you pay over the term of your loan. With the Money Merge Account, you use your income and savings to reduce your loan balance and minimize your interest payments. This means more of your money goes towards your principal balance each month, helping you repay your mortgage years earlier and save thousands of dollars in interest.
Reducing monthly payments/consolidating other debts The Money Merge Account is much more than just an accelerated mortgage payment option. Other debts (e.g. credit card balances, personal loans, overdrafts etc.) can be transferred to the Money Merge Account - which means you benefit from paying less interest on all your debts instead of expensive, unsecured rates. The reduction on your minimum monthly payments can be significant.
And if you're concerned about rolling all your debts into one big balance, don't be. You'll be able to break your debts into individual repayment plans. So you can have a plan for your mortgage, a plan for your credit card balance, and a plan for your loan. We'll help you budget to pay off what you want when you want, and you'll be able to see each element of your debt falling month-by-month in line with your plans.
Funding a major purchase (new car, holiday home, boat etc.) The Money Merge Account can help in a number of ways - depending on whether you want to build a lump sum of equity to fund a purchase, borrow the money, or do a little of both.
Building a lump sum Many mortgage programs on the market give you the chance to overpay your mortgage each month. But if you're looking to save for a major purchase (e.g. a holiday home, a car or a boat) at the same time, you haven't got the flexibility to do so. The Money Merge Account lets you have your cake and eat it too. It allows you to put money aside each month for the purchase and use this money to reduce your balance while you build up the lump sum.
With the Money Merge Account, you'll be able to set up a savings plan just for this. That way, the savings part of your balance can be seen separately from the rest of your Money Merge Account balance, and you can budget to build up the lump sum by the date you want.
Borrowing at a mortgage-style rate Traditionally, if you haven't got enough saved for a major purchase like a new car, your only option is to borrow the money. This usually means taking out an auto loan or using a credit card, all at much higher interest rates than you pay on your mortgage. The Money Merge Account is a much cheaper way to pay, because everything is paid back at a very low mortgage-style interest rate.
And you can set up a separate loan plan just for this. That way you can focus on paying this part of your Money Merge Account balance off as quickly or as slowly as you want, and you can check your overall plan whenever you like.
Buying a second property Because the Money Merge Account is secured against your home, you can usually spend up to 100% of the property value. So if you'd like to use the equity in your home to buy a second property, it's ideal! You can borrow at a very low mortgage-style interest rate while retaining the flexibility to pay back how and when you like. Many lenders will charge a higher interest rate simply because the money is for a second property, but with the Money Merge Account, you can pay a much lower amount of interest than traditional investment style interest rates.
And you can set up a separate payment plan just for this. That way you can focus on paying this part of your Money Merge Account balance off as quickly or as slowly as you want - and check your overall plan whenever you like.
Planning for school fees or university If you have young children, chances are you'll need to either save or borrow enough money to get the children through school and university. The Money Merge Account can help in both instances.
Building a lump sum If you're looking to put money aside each month for the future, then one of the best places for this is the Money Merge Account. In this way, the money can reduce your interest charges on a day-to-day basis, and you can simply draw on it when the time comes.
With the Money Merge Account, you'll be able to set up a savings plan just for this. In fact, the savings part of your balance can be seen separately from the rest of your Money Merge Account balance, and you can budget to build up the lump sum by the date you want.
Borrowing at a mortgage-style rate Alternately, if you need to borrow the money, the Money Merge Account allows you to release the equity in your house at a low mortgage-style interest rate and with the least amount of hassle.
You can even set up a separate borrowing plan just for this purpose! The great thing about the Money Merge Account is that it gives you the flexibility to do what you like with your money. In many ways, you don't really have to think about whether you are borrowing or saving, because when you've got money, it can go in the Money Merge Account to reduce your balance. And when you need money, you can simply draw it out of the account.
Coping with short-term ill health, unemployment, or job transferring The flexibility of the Money Merge Account works both ways. It's not just a vehicle to quickly repay your mortgage. When money's tight (e.g. if one income disappears temporarily as a result of illness or loss in job), then the Money Merge Account enables you to use your increased equity build up to pay for the daily or monthly costs you incur until you are able to get back on your feet financially. This way, you know you'll get back on track, come what may. We've got a dedicated team of account managers on hand to talk through your options. You'll also be able to use our online service to run a tight budget. It will let you analyze where your money's going, plan your entire spending for the month, and work out what you'll have left over, as well as set longer term plans for repaying your loans.
The key thing is that the Money Merge Account gives you the financial flexibility you need to adjust to changes in your lifestyle - in a way that's right for you - without having to worry unnecessarily about unknown consequences.
Planning for maternity The flexibility of the Money Merge Account can be used to cushion the financial impact of a newborn baby. If one of you wants to take time off work, then there are a number of options available, from reducing your overall payment commitments for a time to providing the additional money needed for those unforeseen expenses.
If you need to run a tighter budget, we can help you. Our online service will let you plan your entire spending for the month and work out what you'll have left over, even down to the penny if you want. You'll also be able to analyze where your money's going, so you can see at a glance where you can cut your spending. We can also help you set longer term plans for repaying your loans, taking into consideration the peaks and troughs of your income and expenditure over the coming years.
The key thing is that the Money Merge Account gives you the financial flexibility you need to adjust to changes in your lifestyle - in a way that's right for you - without having to worry unnecessarily about unknown consequences.
Short-term spending e.g. holiday, Christmas Most of us are used to getting out the credit cards when it comes to the more expensive periods of the year, such as booking the summer holiday or buying presents at Christmas. The Money Merge Account can take the stress out of these things, allowing you to reduce your repayment commitments for a time and make them up at a later date. Instead of hiking up your credit card balance, you can simply spend a little more of your monthly income, leave a little less in the Money Merge Account, and then just get back on track as you go.
This means you're no longer tied to the usual 'receiving income/spending income' monthly cycle - you have the flexibility to cope with the peak spending periods of the year without the interest and expense that normally comes with them.
Making the most of an inheritance, windfall, large bonus, or maturing investments The Money Merge Account offers a better home for lump sums than any conventional deposit account. By depositing them straight into the Money Merge Account, you reduce your loan balance, so you pay less interest. The interest you save by doing this is more than the interest you could earn in any other savings account. And because it's interest saved rather than interest earned, there's no tax to pay.
And the great thing is that the Money Merge Account comes with checks and a debit card as well, so you've got instant access to this money. You'll have a checkbook, debit card, telephone, and internet access all at your fingertips. There are no notice periods; you can simply draw on your money whenever you like and for whatever you want.
Funding home improvements If you're looking to build that extension, then using the equity in your home could be the most cost-efficient way of funding it. Because the Money Merge Account is secured to your home you can usually spend up to 100% of the property value and pay below market interest, so no more expensive personal loans or finance agreements.
Self-employed We recognize that being self-employed means you need something extra when it comes to managing your money. That's why the Money Merge Account offers you...
The chance to save thousands on your loan With the Money Merge Account, you are able to pay less interest on all your loans, thus slashing your monthly interest bill and putting an end to expensive loans and credit cards. In addition, your income works to reduce your loan balance on a day-to-day basis, so any money left unspent in your account continues to save you interest over the lifetime of the account. These savings run easily into thousands.
Greater flexibility The Money Merge Account is much more than just an interest saving tool. You can manage your payments in line with your cashflow, all without penalties or charges. Pay more one month, pay less the next! It's entirely up to you.
More control With online access and complete telephone access, you can manage your money how and when you want. You'll have one balance showing you exactly where you stand and how far ahead you are of schedule. You can break down your Money Merge Account any way you like, and you'll be able to plan your short-term and long-term spending in great detail.
The perfect home for your tax money The fact that you're using money in the Money Merge Account to reduce your balance and save interest, rather than earn it, means you don't pay tax on it. This makes the Money Merge Account the perfect place to put aside some money for the taxman. And when the time comes to pay the tax bill, you just write a check to cover it. This way, your money is working for you from the day it comes in to the day it goes out.
Young professionals If you're just starting out in your professional career, chances are you'll need a flexible solution for your finances. You can benefit from the flexibility of the Money Merge Account in the early years of your professional life because you're not tied to high traditional interest options. This gives you the freedom to cater for the ups and downs in your spending. And as soon as your salary increases and you start to earn bonuses, you can use your surplus income to reduce your balances and save even more interest. The flexibility of the Money Merge Account means that you can also use your equity for the bigger purchases like a new car or a dream holiday, rather than having to take out more expensive loans.
Young couple - first time buyers The Money Merge Account is designed to meet your financial requirements as you go through life. It can help fund a wedding, a new car, or a holiday, as well as allow you the flexibility to deal with the financial impact of having a child. You can use the Money Merge Account to overpay on your mortgage, thus building up equity in your home, which will mean a higher deposit when moving to a bigger house in the future. If you can overpay your mortgage from the outset, you will save the maximum amount of interest in the long-term. You can spend up to 100% of your increased equity to furnish your new home and cover other expenses. And if your home needs improving, the Money Merge Account can be used to fund home improvements further down the line.
Couple moving up the property ladder amidst other life expenditures The Money Merge Account can help you accelerate your rise up the property ladder. It allows you to use your income and savings to reduce your balance and build up equity in your home, so you can move to a bigger property sooner. And if you move, the Money Merge Account can move with you. If you have children, the Money Merge Account also offers you greater flexibility in dealing with the extra financial strain of raising them. It can be used to put money aside for school/university fees - so you get the benefit of this money working to reduce your balances and save you interest. And you can use the accelerated equity in the property to put your children through school even while covering any other expenses. And you retain the same flexibility in terms of repayment.
Commission-based income The Money Merge Account gives you the flexibility to manage your finances in line with your cashflow. So when you have more income, you can deposit more and save more interest. When you have less income, you can deposit less. You're no longer tied to the usual 'receiving income/spending income' monthly cycle; instead, you have the flexibility to cope with receiving a low annual income and high sporadic commission amounts, even having that money available anytime you need it. And it saves you interest all the while!
Irregular income The Money Merge Account works particularly well if you're paid a small salary but receive large sums in the form of bonuses or dividends during or at the end of the year. You can manage the Money Merge Account in line with your cashflow. You've also got the flexibility to deposit more when money's available and less when money's tight. Any lump sums can also work harder in the Money Merge Account, reducing your balance and saving you interest.
Older couple - children left home The Money Merge Account allows you to use any surplus income you have to accelerate the repayment of your mortgage. If you have any investments - e.g. endowments, etc. - these can also be put into the account when they mature to reduce your mortgage balance and save you even more interest. You can also use the equity in your house to fund that holiday or luxury you've always promised yourself. Your money is there until you need it, but it reduces your loan balance and saves you interest in the meantime.
One of the most controversial topics that I have run accross here on Activerain is when ever I post about liking the MMA mortgage acceleration type programs. There are some people that truly believe that the MMA programs are just scams and they are going to "Destroy a part of the market" (this was an actual quote from someone about the MMA)
I have had all kinds of responses (when I say response I really mean attacks and insults) like "It's a Scam" or "you are selling Snake Oil" or "You are lying because the Math does not add Up" or " you should always have a mortgage to take the Tax benefits..to suggest otherwise is just irresponsible"..And the list of response goes on and on as to why the MMA is terrible.
All I do is try to preach the benfits of the MMA and the "objective" reality of them and how they can be a powerful option for the right person under the right circumstance...
I started to think that I was the only one here at Active Rain that actually liked the MMA...Then something funny started to happen....Some people really started to see that I was being sincere and not just trying to sell them "snake oil". Some people started to really investigate this Newer concept of paying your mortgage. Some of the vehement MMA "nay-sayers" started to relent and admit that the MMA is NOT as bad as they first thought and that they were NOT fully Understanding the concept when they were doing their "nay-saying"....It was a Nice surprise...
I also stated to see some other "Raving Fans" of the MMA come out of the wood work...Below is just a sampling of some comments of others who love the MMA and how they articulated the benfits of the MMA better than I ever could have.
"I would like to say something about this. I do financial planning and use mortgages as a tool to free up homeowners money. By using idle money in your house you can accelerate your retirement by 20 years. The rule of thumb is if you let your money grow and keep it in a safe investment vehicle then you will accumalate enough cash to pay off your house if need be in a side fund. The problem with this is most people don't stick to the plan. With Money Merge homeowners can have the best of both worlds.Invest idle dollars for retirement from your equity and pay your house off in record time through the MMA. A couple of key factors are to put your money to work in a TAX FREE environment with a reasonable rate of return with limited risk. Most homeowners still want the dream of OWNING there home. This is a perfect solution. Tax free investing, tax free accumalation, tax free withdrawel and tax free transfer of wealth to heirs = no need for mortgage interest deduction at retirement.
If you ask the homeowner to use the new saved money they were using to pay there mortgage and put it to work in an investment vehicle, believe me, it will never happen. Homeowners need it simple and that is what MMA does.
And then is there this one which is my personal favorite taken from the response of the same post:
"I have to say that this is the finest posts I have seen on the internet. Respect, kindness and people reasoning one with another. I wish i could embed a round of clapping in my post.
I would like to make a comment on this, as I might personally be a hybrid situation. I was a client of the MMA before I started selling it, and I have to agree with everything here so far.
I'm married, have nine children (yes, I said 9), and I had just bought a home one year previous to being told about the Program. I took my own 29 year mortgage and shaved off 22 years and $109K in interest. Now, there are other factors here. I didn't have the discipline to do anything like this on my own, and this Program has helped me keep on track.
However, I agree completely that this (or any other product or program) is NOT for everyone. It fit perfectly with mine and my wife's goals, our means, and our financial situation. My own personal standard of living has improved each month, and I will soon have the option of buying a second property and start building rental income for my future.
Now, I'm no whiz here. I'm just an ordinary guy with a passion for something that has helped me personally. But you HAVE to do your homework. My brothers and I at The jubilee Project encourage people to back off. Not because we don't want them to buy an MMA, but because we want them to choose what's right for them and for their families...not because they bought into some hype!
PLEASE don't rush. There's no need, and as it's been stated, talk to professionals. Look into ALL your options. See what's right for you. I only sell ONE Product...but I simply can't live with someone jumping on something due to emotional excitement alone. Invest in yourself and due the time when it comes to research.
I believe the MMA Program and others will become the wave of the future, simply because they have merit and they work. No, they are not for everyone...but I think they will be improved upon and adjusted as time goes on, and they will fit more and more.
Thank you for such a good, calm, respectful conversation.
I spend most of my time having to battle emotional anger and unfounded accusations.
Below is a "basic" overview video of how an MMA "Type" mortgage acceleration program works and why it is powerful. There seems to be a lot of fundamental misunderstanding how these type of programs work. I am trying to shed some light on how and why the MMA is very powerful and how it can be a great thing for the right, potential borrower.
Personally, I can honestly say the MMA is NOT for everyone. I always perform a suitability test and run a specific and individualized analysis for anyone considering this type of program (or any type of loan program I offer). One of the biggest misunderstanding is how you can accelerate your mortgage without effecting you monthly cash flow that you would normally have for other expenses, and other potential investments. Well a lot of this lies in the inherent feature of a second position HELOC, of open ended interest only payment calculations and the total due based on the outstanding amount. It also has a lot to do with "timing" and actually floating the banks money and using this float period, "consistently" to cancel out the "daily" interest accumulation on your closed ended First position 30 year fixed mortgage....
Yes, I know it sounds complicated, but it is a lot more simple then it appears when you understand the basic, yet abstract, financial concept that the banks have been using to their advantage since the beginning of time.
This concept of "Mortgage Acceleration" is NOT a new concept on a "global" perspective, it is just fairly new here in the USA. It has been used effectively for decades in Australia, the U.K. and other parts of Europe. Google "Virgin One account"....You will see the results for an institutional level product that works on this same concept that is used effective over in the U.K. The Virgin One Account is offered through RBS (Royal Bank of Scotland) and is sponsored and promoted through the "Virgin" Name (Richard Branson Billionaire guy)
The MMA uses a slightly different variation then the traditional "Virgin One Account" type variation. The MMA allows you to keep your traditional, first position, closed ended interest 30 year fixed mortgage (or what ever mortgage you have currently) and works on utilizing a smaller second position Home Equity Line of credit which has "open ended interest" calculations. The MMA software (of course is optional) helps you apply the interest cancellation process as efficiently as possible and actually give you a final target date of when you will be "Mortgage Free"...I like the software because it helps me stay on target and it is a lot more efficient than if I tried to do this on my own.
Now, let me make something clear....I believe in this whole general concept, and specific technique of Mortgage Acceleration. You can always do this on your own without having to use the specific methods of the MMA or the MMA software (personally I would not want to attempt this on my own). You Don't need the MMA to accelerate your mortgage and there are other similar products ou there that are fairly decent and powerful products. I just want to really dispel a lot of the misunderstanding with this type of product...There is a lot of "misinformation" and just plain misunderstanding.
There are also different "Schools of thought". Some feel you should NEVER pay off your mortgage on your primary residence because you would miss out on the tax benefits and take away from your cash flow to be used for other types of investments to grow your wealth (remember the MMA does not effect your cash-flow).
Then there is the "School of thought" that you should pay off everything you owe in the shortest time possible, saving hundreds of thousands of dollars in unnecessary interest charges while still having the flexibility and available cash flow to invest wisely for the future....This is what the MMA addresses.
The information is "out there".... you decide what is BEST for you
I seriously think Bob and Suze need to put on the boxing gloves step into the ring together and have it out...
Here you have two extremely popular mainstream, "Pop culture" financial advisor, icons spouting their own versions of "financial freedom" and the "truth about debt". They both sit at the opposite ends of the spectrum in their views on money, Debt and investments...
So who is right?...Who is wrong?
Personally I dislike them both....More accurately I dislike both of their methods and advice....But if I had to pick, I probably would sit on the "more conservative" side and go the Suze Orman route. Although I do think Suze is, most of the time, just spouting a bunch of "good sounding" generalities that seem like common sense.
I think Suze speaks with her certainty, and forceful confidence more as a selling point for all the "Kool-aid" drinkers out there that listens and follows anyone that speaks with enough confidence...Don't get me wrong, some of her advice is sound and just plain common sense, but I just think sometimes she speaks about things that she really has little knowledge of especially when it comes to Mortgages and loan programs, and indices that certain loans may be tied to and why that is important....
Suze over compensates and errors on the side of caution to protect her reputation and the "kool-aid" drinkers she markets her wares to.... I can understand this approach, but this does not mean I agree with her advice even 25% of the time.
I can appreciate Suze Ormans tendency to be a little financially conservative but sometimes I think she participates in a little "Financial Fear Mongering" on topics she obviously knows "little" about,...specifically Mortgages.
Robert Kiyosaki on the other hand almost borders on "financial reckless abandon". He advocates the approach to run up debt to increase cash flow and to use the liquidity from running up debt to make investments.
Mr. Kiyosaki is a believer in the mindset, which a lot of your more traditional Financial planners out there share, that you should always have a mortgage on your home and be taking the tax benefits...Robert also seems to like the idea of taking an "Option Arm" program and doing the minimum "Neg Am" payment and investing the difference of what you would be paying towards a more traditional type 30 year fixed mortgage.
I can't even begin to express how much I shudder at the advice Mr. Kiyosaki gives...What is scary is a lot of "mainstream" financial planners agree with him.
Me, well,...I tend to fall more in the middle between Suze and Robert. I believe most people probably fall in this "middle" area.
First, I think you should always focus on completely paying off the mortgage on your primary residence as quickly as you possibly can. Forget about the tax benefits that come from having a Mortgage...Why the heck would you pay a bunch of interest up-front, just so you can write off the interest on your taxes and hope you can get a bigger tax return at the end of the year?...Just does not make sense to me...Why not just remove this complete waste of time from the equation all together and just pay off your mortgage as quickly as you can....Not too mention that the IRS can decide to pull any tax benefit on owning a home at anytime...I just don't like putting that control in someone else's hands....How about you?
Second, Why the heck would you take a "Neg Am" mortgage, on your primary residence, make the minimum payment and invest the difference?...Now if you have the strict discipline to be able to invest the difference this might actually work, but at best, the problem still remains, that you are still gambling on the future performance of what the market is going to do that you are investing in.
Do you realize that by "Contract" the most a financial planner can guarantee as a return on your money is 3%? Now do the math, when it comes to doing a "Neg Am" payment and investing the difference and see if this approach is really that good of an idea.
Personally I like to have control and NOT put my "faith" in anything, if I don't have to, especially when it comes to money and the future security to my family and me...But thats just me...I've been called a 'Control Freak" more than a few times in my life.
This is why I like the "Money Merge Account" (MMA) method of paying off your first mortgage as quickly as possible without affecting your monthly cash flow.
What is an MMA?
The Money Merge Account consists of three major components:
1. Your Existing Primary mortgage
The existing mortgage on your home is the foundation for the Money Merge Account.
2. An Advanced Line of Credit (ALOC same thing as a 2nd position Home equity line of Credit)
The MMA Program uses an advanced equity line of credit as a vehicle or a tool to drive the program. The equity line of credit must have the capacity to operate similar to a primary checking account and be set up with an open-end interest calculation vs. a closed-end interest calculation. Combined with the MMA web-based system, this creates a formula in which the money in your line of credit account generates an interest cancellation on your primary mortgage.
3. MMA software
The online MMA system makes a connection between your bank account, the advanced line of credit and your primary mortgage. Each time you deposit income into your account, it registers as a decrease to your mortgage balance. By decreasing your mortgage balance you now lower the balance in which interest accrues. By decreasing the balance in which interest accrues, you increase the portion of your monthly payment which is credited toward your principal pay down. The algorithms in the proprietary MMA system are systematically programmed to create the highest interest savings possible in the least amount of time.
In short, an MMA is basically getting a smaller second position "Home Equity Line Of Credit" or HELOC on your home and use this HELOC as you would use your regular checking account by cycling your income through it (direct deposits and what not). Since HELOCs use "open ended" interest calculations you can use this to your advantage by canceling the interest on the "Closed-ended" interest calculations on your current "first" mortgage and making some accelerated and "compounded" principle pay-downs in the process.
A HELOCs payment is also based on an "Interest Only" calculation on what ever the average daily balance is of the Line of credit. It is assumed if you are cycling your income through this line of credit not only is the HELOC payment automatically made for you but the amount of interest that is charged is minimal because you are constantly keeping the total drawn amount on the line at a very low level. Compare this concept to a fixed second mortgage and see what you come up with...Go ahead do the math.
You always will have access to your income and cash flow based on the HELOC being an open ended line of Credit that you can draw upon at anytime.
You get the best of both worlds using this approach. You get to pay off the biggest debt you will probably ever have (your home) in less than half the time and you still have access to your cash to invest as you would like to so you do not miss any great investment opportunity that may come along.
Using a "Money Merge Account" (MMA) as a financial planning tool gives you back control. It is a known as opposed to an unknown, which is the territory that most "traditional" Financial planners roam.
Now using the MMA concept does take some discipline. It does you NO justice to constantly run up the MMA account on frivolous purchases that you would not normally make if you did not have the MMA.
Your Home is NOT a credit card and an MMA should NOT be the vehicle to treat your home like a credit card. But, with this being said, I challenge you to compare this level of discipline that is required to effectively use the MMA against the discipline that is required using a "Neg am" option ARM type payment loan and investing the difference which is spouted by Mr. Kiyosaki and some of your more main stream financial planners.
Now, because I personally like the MMA concept this is where I diverge from not only from Robert Kiyosaki but Suze Orman as well.
Hell, I remember Suze Orman spouting here usual "fear mongering" about the dangers of "Home Equity Lines of Credit" HELOCs saying that if you miss a payment on a HELOC you will lose your home. Jeesh, that's a little bit of an exaggeration. The problem people run into when they use HELOCs is that they tend to treat them like a credit card secured by their home. This is the absolute wrong approach and is nothing what the MMA method advocates.
So back to the original question...Who is right who is wrong?...If you'd ask me I would say Both Robert and Suze are wrong because they are not understanding the "wide scope" implication of what they preach to the masses. I would also say there are certain financial concepts that both are unaware of that they might actually both agree with.
Not everyone will fit into any "cookie cutter" financial plan. A lot of it comes down to style, comfort levels, discipline, and personal financial tolerance...in essence "Different Strokes for Different Folks..."
My only point is not to believe anyone "blindly" just because they may be popular or speak with confidence. Investigate for yourself what may be the BEST course of action for you based on your own personal financial situation and goals...
In the mean time I will see if I can arrange that Celebrity death match between Robert and Suze, You interested in buying tickets to watch?..... ;)
Keith Gill is a Successful Certifed Mortgage Consultant and Loan Officer for a major mortgage bank. IF you would like to Contact Keith or learn more about the "Money Merge Account" method of paying off your current 30 Year Mortgage in less then ten years just got to http://www.LoanAcceleration.net
I've often been told that I am an "out-spoken", extremely "opinionated" individual that always causes some form of controversy....I'm sorry....I know I'm stubborn....I'm just very confident in my beliefs and my views....I'm a very driven "Type-A" personality
I'm a Stubborn "Irish-man" who was born and bread in a strict "Catholic" upbringing, went to catholic school most of my life and was even an alter boy...I "argue" and cause "shenanigans" as a "way of Life"...
Even though I argue and I'm stubborn I will always "hug you" or at least buy you a beer at the end of the day and laugh at a few jokes...
So what the heck does this have to do with "Active Rain" and the topic of the groups being posted to?...Well I have sensed that I have ruffled some feathers with my strong "opinions" and "Cocky" attitude....Heck I know I have been banned from posting to at least one group so far here at Active Rain....But that's O.K.
So, since I get frustrated posting to other peoples groups and "cause" some frustration in the various groups here at Active Rain I have decided to Start my own group....It's called ""Real" Mortgage Experts Networking Group". All are encouraged to join..
Don't worry I won't ever "Ban" you from posting unless of course you just threaten, or intimidate group members or just won't quit "Blatant" spamming (3 strikes and your out rule) Subtle self promotion is O.K. just as long as your posts contain some sort of Value to the end user and is just not a "Blatant" advertisement
I have seen a lot of controversy over "MMA type" mortgage accelerator programs here on Active Rain lately
Some People here on active rain are lumping together MMA's with Option arm Neg Am programs (Deferred Interest) as one in the same and that they are TERRIBLE products for ALL people...
First MMA's and Neg Am option arms are both No where even in the same universe as being the same. When an MMA is set up right there is NO WAY to go "Neg Am" in fact it does not even work closely on the same principle as an Option Arm so I am not sure why they have been lumped together here on Active Rain by certain individuals.
The only reason I can think that People have chosen to Lump together "Neg AM" option ARMs with "MMA type" programs is because they do not understand either of them....
The "Neg Am" option arms and MMA type, mortgage accelerator loans are NOT the same....The Option Arm has received a bad rap because it is sometime marketed in unethical manners to potential borrowers as a "hook" who really would not understand the loan to begin with, being explained by "rookie" loan officers that don't understand the loan either.
We have all seen the adds: "Get a 1% interest rate on your mortgage" , "Get a $600,000 mortgage for only $500.00 a month..." For crying out loud, even Lending Tree posts ads like these all over the Internet so people will apply through Lending Tree. It is Deceptive and this is where people can get in trouble if they do not take the time to understand what they are getting into...
I do agree that Option Arms are promoted in unethical ways for the sole purpose to ""hook" unsuspecting potential borrowers in getting into this type of Loan when they should definitely NOT be in this type of Loan...I am sure that eventually the FTC and HUD will start to crack down on the "unethical" promotion of Neg Am option arms...
Despite this I believe Option ARMs "DO" have their place....An example would be if you were an investor who purchases rental properties in an appreciating market and you were looking for cash flow and intended on selling the rental before 5 years or at least getting out of the Option ARM before 5 years. But this example is one of the very few instances when I think an Option ARM can benefit especially if the borrower knows what they are doing....
An MMA is Completely different and NO where nearly related to a Negative amortization option arm type loan. The power of an MMA lies in the use of a small HELOC line in second position to accelerate your current First Mortgage. An MMA set up with small "second" position HELOC that WILL NOT recast for at least 10 years against a Conforming 30 year fixed mortgage with NO pre-payment penalties specifically, is powerful that is.
For the MMA to work its magic, ideally, you should always be keeping the "total drawn" line amount at an extremely low level as you cycle your income through it and make additional principle pay-downs on your already established first mortgage...It does you NO justice to constantly Max-out your line amount on purchases that you would have not normally made if you did not have the HELOC in the first place If you intend to accelerate your first mortgage. Your Home is NOT a Credit Card and a HELOC should NOT be treated like one...
But an MMA works wonderfully for the "disciplined individual". Say you have a 30 year Fixed at 6% at 80% LTV (loan amount does not really matter for this purpose) and then you get a HELOC total Line amount of 15% LTV / 95% CLTV and cycle you income through the HELOC using it like you would use your Regular checking account...There would be NO possible way to go "Neg Am" in this scenario. You would only have the "opportunity" to accelerate your First mortgage by making "Forced" principle pay-downs as your income cycling through the HELOC exceeds the total current Drawn amount.
We All know that a HELOCs payment is based on the outstanding currently drawn amount against the line. So if your pay checks are direct deposited into the HELOC instead of a regular checking account it is constantly paying down the line thorough-out the month Not only is your payment on the HELOC automatically made through the direct deposits of your pay check but the amount of interest accumulated and charged against you is minimal, BECAUSE you are keeping the total drawn amount at a constant minimum.
I think the individuals here on Active Rain lumped together MMA's and Option arms because they themselves do not understand the difference and because they are "relatively" new in the public awareness and can appear "gimmicky" if they are not understood properly...But that is about the ONLY similarity...
I implore EVERYONE to take the time to understand what an MMA actually is and judge for yourself how it is NOTHING like a Negative amortization Option ARM Loan. Just Go to http://www.LoanAcceleration.net and watch the various videos and Visual presentations to get a clear understand of the POWER of an MMA
O.K. here is break down and a complete video giving a visual representation of what has been discussd in my previous Posts specifically a follow-up to this post here
O.K. Before I start...If anyone has a MySpace account and it is Real estate or Mortgage related Go head and shoot a friend request my way at my MySpace page http://www.myspace.com/loanofficersuccess
MySpace is a real enigma to me...It seem that there are people trying to use it to market effectively and at least try to get some referrals and ultimately closed deals, but I am curious if anyone has had any first success using Myspace in their Real Estate and / or Mortgage business...
Is there a "Best Practices" when using Myspace?....
It has HUGE potential but I am just wondering if anyone has a real method of harnessing this huge potential in their Real Estate and mortgage marketing efforts?
Anyone have some simple steps to using Myspace effectively?
Does anyone use those "automatic" friend adders like Friendbot or badder adder?
Pay Off your Current 30 Year Mortgage in less than 11 Years with out changing your monthly Cash flow While using a Home Equity Line of credit as your best Financial Tool : => http://www.loanacceleration.net
I'm a big fan of using a Home Equity Line of Credit (HELOC) as a financial planning tool as expressed in my other posts here on Active Rain. You can literally pay off you current 30 year fixed mortgage in less than half the time, without changing your cash flow, without refinancing your first mortgage, with out doing a silly Bi-weekly plan, and without having to budget....
But,...and this is a BIG but...It does take a degree of dicipline...YOU CAN NOT run your line and max it out consistently on frivioulous things and expect to make a big differen in the amount you owe on your mortgage....Your Home is NOT a credit card and you should not treat a HELOC as one....
With this being said here is a basic overview of what a HELOC is how it works and all the pros and cons of one
More and more lenders are offering home equity lines of credit. By using the equity in your home, you may qualify for a sizable amount of credit, available for use when and how you please, at an interest rate that is relatively low. Furthermore, under the tax law--depending on your specific situation--you may be allowed to deduct the interest because the debt is secured by your home.
If you are in the market for credit, a home equity plan may be right for you. Or perhaps another form of credit would be better. Before making a decision, you should weigh carefully the costs of a home equity line against the benefits. Shop for the credit terms that best meet your borrowing needs without posing undue financial risk. And remember, failure to repay the amounts you've borrowed, plus interest, could mean the loss of your home.
A home equity line of credit is a form of revolving credit in which your home serves as collateral. Because the home is likely to be a consumer's largest asset, many homeowners use their credit lines only for major items such as education, home improvements, or medical bills and not for day-to-day expenses.
With a home equity line, you will be approved for a specific amount of credit--your credit limit, the maximum amount you may borrow at any one time under the plan. Many lenders set the credit limit on a home equity line by taking a percentage (say, 75 percent) of the home's appraised value and subtracting from that the balance owed on the existing mortgage. For example, [D] In determining your actual credit limit, the lender will also consider your ability to repay, by looking at your income, debts, and other financial obligations as well as your credit history.
Many home equity plans set a fixed period during which you can borrow money, such as 10 years. At the end of this "draw period," you may be allowed to renew the credit line. If your plan does not allow renewals, you will not be able to borrow additional money once the period has ended. Some plans may call for payment in full of any outstanding balance at the end of the period. Others may allow repayment over a fixed period (the "repayment period"), for example, 10 years.
Once approved for a home equity line of credit, you will most likely be able to borrow up to your credit limit whenever you want. Typically, you will use special checks to draw on your line. Under some plans, borrowers can use a credit card or other means to draw on the line.
There may be limitations on how you use the line. Some plans may require you to borrow a minimum amount each time you draw on the line (for example, $300) and to keep a minimum amount outstanding. Some plans may also require that you take an initial advance when the line is set up.
What should you look for when shopping for a plan?
If you decide to apply for a home equity line of credit, look for the plan that best meets your particular needs. Read the credit agreement carefully, and examine the terms and conditions of various plans, including the annual percentage rate (APR) and the costs of establishing the plan. The APR for a home equity line is based on the interest rate alone and will not reflect the closing costs and other fees and charges, so you'll need to compare these costs, as well as the APRs, among lenders.
Interest rate charges and related plan features Home equity lines of credit typically involve variable rather than fixed interest rates. The variable rate must be based on a publicly available index (such as the prime rate published in some major daily newspapers or a U.S. Treasury bill rate); the interest rate for borrowing under the home equity line changes, mirroring fluctuations in the value of the index. Most lenders cite the interest rate you will pay as the value of the index at a particular time plus a "margin," such as 2 percentage points. Because the cost of borrowing is tied directly to the value of the index, it is important to find out which index is used, how often the value of the index changes, and how high it has risen in the past as well as the amount of the margin.
Lenders sometimes offer a temporarily discounted interest rate for home equity lines--a rate that is unusually low and may last for only an introductory period, such as 6 months.
Variable-rate plans secured by a dwelling must, by law, have a ceiling (or cap) on how much your interest rate may increase over the life of the plan. Some variable-rate plans limit how much your payment may increase and how low your interest rate may fall if interest rates drop.
Some lenders allow you to convert from a variable interest rate to a fixed rate during the life of the plan, or to convert all or a portion of your line to a fixed-term installment loan.
Plans generally permit the lender to freeze or reduce your credit line under certain circumstances. For example, some variable-rate plans may not allow you to draw additional funds during a period in which the interest rate reaches the cap.
Costs of establishing and maintaining a home equity line Many of the costs of setting up a home equity line of credit are similar to those you pay when you buy a home. For example,
A fee for a property appraisal to estimate the value of your home
An application fee, which may not be refunded if you are turned down for credit
Up-front charges, such as one or more points (one point equals 1 percent of the credit limit)
Closing costs, including fees for attorneys, title search, and mortgage preparation and filing; property and title insurance; and taxes.
You could find yourself paying hundreds of dollars to establish the plan. If you were to draw only a small amount against your credit line, those initial charges would substantially increase the cost of the funds borrowed. On the other hand, because the lender's risk is lower than for other forms of credit, as your home serves as collateral, annual percentage rates for home equity lines are generally lower than rates for other types of credit. The interest you save could offset the costs of establishing and maintaining the line. Moreover, some lenders waive some or all of the closing costs.
How will you repay your home equity plan?
Before entering into a plan, consider how you will pay back the money you borrow. Some plans set minimum payments that cover a portion of the principal (the amount you borrow) plus accrued interest. But (unlike with the typical installment loan) the portion that goes toward principal may not be enough to repay the principal by the end of the term. Other plans may allow payment of interest alone during the life of the plan, which means that you pay nothing toward the principal. If you borrow $10,000, you will owe that amount when the plan ends.
Regardless of the minimum required payment, you may choose to pay more, and many lenders offer a choice of payment options. Many consumers choose to pay down the principal regularly as they do with other loans. For example, if you use your line to buy a boat, you may want to pay it off as you would a typical boat loan.
Whatever your payment arrangements during the life of the plan--whether you pay some, a little, or none of the principal amount of the loan--when the plan ends you may have to pay the entire balance owed, all at once. You must be prepared to make this "balloon payment" by refinancing it with the lender, by obtaining a loan from another lender, or by some other means. If you are unable to make the balloon payment, you could lose your home.
If your plan has a variable interest rate, your monthly payments may change. Assume, for example, that you borrow $10,000 under a plan that calls for interest-only payments. At a 10 percent interest rate, your monthly payments would be $83. If the rate rises over time to 15 percent, your monthly payments will increase to $125. Similarly, if you are making payments that cover interest plus some portion of the principal, your monthly payments may increase, unless your agreement calls for keeping payments the same throughout the plan period.
If you sell your home, you will probably be required to pay off your home equity line in full immediately. If you are likely to sell your home in the near future, consider whether it makes sense to pay the up-front costs of setting up a line of credit. Also keep in mind that renting your home may be prohibited under the terms of your agreement.
Lines of credit vs. traditional second mortgage loans
If you are thinking about a home equity line of credit, you might also want to consider a traditional second mortgage loan. A second mortgage provides you with a fixed amount of money repayable over a fixed period. In most cases the payment schedule calls for equal payments that will pay off the entire loan within the loan period. You might consider a second mortgage instead of a home equity line if, for example, you need a set amount for a specific purpose, such as an addition to your home.
In deciding which type of loan best suits your needs, consider the costs under the two alternatives. Look at both the APR and other charges. Do not, however, simply compare the APRs, because the APRs on the two types of loans are figured differently:
The APR for a traditional second mortgage loan takes into account the interest rate charged plus points and other finance charges.
The APR for a home equity line of credit is based on the periodic interest rate alone. It does not include points or other charges.
Disclosures from lenders
The federal Truth in Lending Act requires lenders to disclose the important terms and costs of their home equity plans, including the APR, miscellaneous charges, the payment terms, and information about any variable-rate feature. And in general, neither the lender nor anyone else may charge a fee until after you have received this information. You usually get these disclosures when you receive an application form, and you will get additional disclosures before the plan is opened. If any term (other than a variable-rate feature) changes before the plan is opened, the lender must return all fees if you decide not to enter into the plan because of the change.
When you open a home equity line, the transaction puts your home at risk. If the home involved is your principal dwelling, the Truth in Lending Act gives you 3 days from the day the account was opened to cancel the credit line. This right allows you to change your mind for any reason. You simply inform the lender in writing within the 3-day period. The lender must then cancel its security interest in your home and return all fees--including any application and appraisal fees--paid to open the account.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
More and more lenders are offering home equity lines of credit. By using the 
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