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Equity Harvesting, Money Merge Accounts and the Benefits of Using Both

Yes, you heard me right, utilizing both as strategic tools can provide major benefits. I am not talking about using the MMA software per se, but rather the special HELOCS allowing you to use them as a checking account to provide interest cancellation. This strategy is not for everyone, but may provide huge benefits for those who decide to use it.

First off, strat yourself off correctly, lock in your acquisition indebtedness so you stop wasting money. You can do this by utilizing an interest-only loan to stop the "bleeding". Why? Because home equity is not a good investment, so why not put your money to work for you instead?

Now, here is where the strategy gets really interesting. Set up a $100,000 (if you can) HELOC that can work as a checking account or similar to the Money Merge Account, but don't worry about the software (unless you need to be spoon-fed when to move your money around). Then figure out what kind of investments you would like to use with your "harvested equity".

Let's just say you want to follow the Doug Andrew technique and use the investment grade life insurance. You are limited by numerous laws about how much you can put in annually, subject to TEFRA, DEFRA, and TAMRA limitations. These laws were put into place as the wealthy were using them to bypass taxes completely and provide important protections from litigation. Properly set up, they still provide a great tool to grow your money tax free, and protect your money. Again, these are not the only investments you can use this strategy with.

Since there are limitations on annual contributions, you can use your home equity through the use of your HELOC to provide funds for your investments. Then you can use the Money Merge Account principals to pay off that debt quickly. Since Home Equity Indebtedness is limited to $100,000, the interest accrued on this account will likely be tax deductible as well. Then, according to your specific plan, you start it all over again.

The bottom line is you are practicing a type of Equity Harvesting, but combining it with the concepts of the mortgage acceleration programs. The CMG Home Ownership Accelerator (which I am certified on and offer) is a great tool for this type of strategy. And once set up, the costs are minimal if any. This strategy could effectively be used to provide increased safety, liquidity, rates of return and tax deductions, all at the same time.

Again, this startegy, as well as others I post, are not a "one size fits all" strategy as you may hear from others. They stress the importance of seeking a qualified mortgage planning professional to find the best solution for your specific financial situation.

Posted by Florida's #1 Mortgage Planner on 08/30/2007 12:56 PM

Comments (40)

money merge account, mma, equity harvesting, robert ashby, strategic equity management, florida mortgages, financial advice

40 Comments on Equity Harvesting, Money Merge Accounts and the Benefits of Using Both

JUN

2007

Robert, I could not agree with you more on your last comment.."

Great post with some good advice

Matt...Thanks and you are absolutely correct about the last statement. Toom any "fakers" in this business taking people for a ride.

I don't like the MMA pitch... it isn't the idea of paying off the mortgage that is offensive - it is the pitch for $3500 in software when the person that would be doing this type of advanced financial planning for him/herself should know how to do this without paying that much

heck - you could probably mcguyver a free copy of quickbooks to do it for you!

David...Thanks for the addition. I do not recommend the "software", especially with the $3,500 price tag. Anyone doing this type of plan is more than likely not in need of the software. I could go an a rant about the vast majority of people selling this software as well, but I refuse to here.

Hey Robert,

Now we're cooking with gas!!! I would like to complement and commend you on this innovative idea. I believe that there is a way to leverage both strategies to maximize wealth acceleration and interest cost reduction and I am open to creating a "Brain Trust" type of forum with this goal in mind. I will be reviewing the CMG Product to see if it is a better fit and lower cost product. I will also post a link to this post in my other blogs.

Hey Robert,

I'm not sure what I have is similar. I have an equity line with prime minus 50 basis points..actually was qualified for -.65 basis points but they did not have it available.. and a large excess amount to use. It is good for 25 yrs as well

JUN

2007

Robert

I'm hesitant to get the CMG loan because its an adjustable rate from the start and is tied to the monthly LIBOR rate. The interest can climb to +10% (current monthly LIBOR at 5.32% +5%cap +margin .5-2.5 depending how much you buy down) Wouldn't this greatly affect the leveraging on my investments. For instance if I was to put 40k in a EIUL the first year and LIBOR rate was 6% then the end of the 4th yr the rates climb to 12% .

Jason...Thank you for the compliment, especially since you were very outspoken against me and some of my ideas. I think the air is cleared now.

Neal...If you are not "direct depositing" income into your HELOC and then paying expenses from there, your HELOC is not the same. You could still use your HELOC, but it would not be as "efficient".

Jimmy a...There are several companies that offer HELOCs that operate as checking accounts as well (allowing direct deposit, etc.). Regarding being tied to the LIBOR, LIBOR tends to follow closely to the Fed Funds Rate, so it is pretty stable right now and not likely to move much in the foreseeable future. Most HELOCs are tied to Prime Rate, which is simply the Fed Funds Rate +3% (currently 8.25%). Depending on your situation, you could get a HELOC below Prime, as Neal did.

Regarding the interest rate versus leverage, the answer is that it will have an effect on your "spread" initially, but with the way this startegy works, in essence using your disposable income and the way interest is calculated on HELOCs, the idea would be to have it paid off fairly quickly, minimizing your interest rate expense. Additionally, you would most likely have tax write-offs with the interest, so the net cost is considerably lower while your investments grow tax-free.

I didn't throw numbers out there as this is extremely dependent on the particular individual/family's situation, understanding, etc. Properly structured and implemented, it could be a very powerful tool to say the least.

Robert

Can you tell me if the CMG loan adjusts downward? Or is fixed at the start rate rate and only adjusts upward. Also how do they figure out how much to charge to buydown the margin to say .5%. Thanks

JUN

2007

Well done Robert.

This is something I've been thinking a lot about. A way to combine both concepts into one more powerful way to handle your mortgage. As a broker I actually don't care for the client that calls and just wants a mortgage at a low rate without considering every aspect of how it fits in their financial picture. The news likes to talk about how dangerous all of these adjustable mortgages have been over the past few years, but they don't give consumers any other "fix" than to extend their mortgage for 30 more years or even more.

This is great stuff.

Jason

Robert, you did a good job in explaining as well as making sure consumers know it is NOT for everyone! The CMG product is the best tool I have seen for this.

Jimmy a...I will have to get back to you (possibly later today, time permitting) and get you that answer as I do not know it off the top of my head.

Jason...As you already know, I am an advocate of keeping equity seperated from the home as the house is not a good place to store cash. That being said, this strategy allows a "balanced" approach. Homeowners need to get away from the rate game as well and start looking for those "qualified" to provide proper advice and ensure they get the best loan for their specific siuation.

Leah...Thanks for the compliment and for re-emphasizing the fact that this strategy (as with any) is not for everyone and that proper guidance is needed to see if it works for the homeowner. I agree that the CMG product is likely the best, but there may be others that work. I am always looking for a better product to assist my clients.

Robert Ashby -

This concept sounds familiar : ). Now your thinking!! I am still surprised that you are hung up on the $3500 investment of MMA, you must not see the benefits of it. Equity acceleration can be changed intensely with a minimal amount of contribution. MMA transfers SPECIFIC (to your financial situation) large amounts from a HELOC to your 1st mortgage, then pays down that amount with your monthly budget in order to do it all over again at the most optimum time. It is simple you make larger payments, sooner, which saves you more interest. How hard is this to understand? Someone could try and do this on there own, but if they transfer too much they run their HELOC balance up too much, if they transfer not enough they wont save enough. MMA makes sure you are getting the most interest cancellation specific to your financial situation, which saves you well over $3500, yes, even over bi-weekly and HOA prepayment programs. The HOA program allows you to refinance your full 1st mortgage into a HELOC structured loan. It uses a similar concept as MMA, putting your pay check in and pay bills out. The money left over, if any, then pays down that loan, canceling interest along the way. It is just simple prepayment with closing costs. YES, closing costs are involved with this loan. If your only problem with MMA is the cost , then offer something better than MMA for free. Of course you are certified to offer HOA and not MMA. I still think you will come around, Robert. You can still do equity harvesting along with MMA, you are not limited to just owning your home sooner.

Robert Klein,

I don't rememeber you mentioning this concept, at least as I have shown, but you may have. Frankly, dealing with all of the comments I have read on posts I cannot remember one mentioning this concept as shown.

That being said, I am not "caught up" on the $3,500 price tag itself, rather that there are cheaper ways of accomplishing the same thing. I fully understand the benefits of mortgage acceleration concepts, I just don't see the need to do it the "UFF" way as there are cheaper alternatives that will bring the same results.

I do not recommend paying off your first mortgage still as that is not generally in your best interests, so HOA or otherwise, you would not refi the first into a HELOC. Rather, you would use the HELOC to "harvest" equity to be used for investments to improve safety, liquidity, and rates of return. By using an interest-only first, you can further the benefit of mortgage acceleration on the HELOC and investment side while keeping your tax benefits secured.

BTW, I am not "coming around" as you put it. I am simply using a blended strategy between pure equity harvesting and mortgage acceleration. It is a best of both worlds scenario that could be powerful if used properly. Paying off a home as fast as possible will likely be a bad idea as homes are not a good place to store cash, are not as safe as they are portrayed, are crappy as an investment, and take away the opportunity to earn money with the money used to pay off the mortgage. Doesn't make sense for most people.

Here are some thoughts on that subject from CFPs...

"It is actually much more risky from an asset allocation standpoint to have a home paid off and few other assets, than to have a mortgage and a more balanced investment portfolio." - Bert Whitehead, CFP (Facing Financial Dysfunction)

"The popular press, following conventional wisdom, frequently advises eliminating mortgage debt is a desirable goal. We show this advice is often wrong because mortgage debt acts as an inflation hedge and a hedge against declines in local real estate values." - Journal of Financial Planning - Sept. 2004 (Mortgage Debt: The Good News)

I could go on and on with these, but remember this...saving money is not the same as making money, or better put, paying off debt is not the same as accumulating assets. You cannot do both, even in this strategy.

Let me leave you with this one from Forbes Magazine, 2005 Investors Guide...

"Suze Orman, the ubiquitous personal finance guru, advises her followers to pay off their mortgage and live debt free. "Please - become mortgage free sooner, rather than later," she implores readers in The Laws of Money. If you struggle to pay your bills, Suze's advice is sound. But if you are in a high tax bracket and your main concern is investing for the future, ignore her! So long as you have the self-discipline to invest the extra money borrow, rather than fritter it away, you are likely to come out ahead by carrying a bigger mortgage."

"So, when you buy a new house, take out the biggest mortgage you can without incurring higher interest costs, even if you have spare cash. Invest the cash instead!" - Ira Carnahan, December 2004

Robert,

How come the CMG product works and the MMA product doe's not. It appears that some (most) people are concerned about the $3500.00 software for the MMA however I have seen no mention of the closing cost for the CMG product. Are there any closing cost for the CMG line of credit and if so how much? From what I have seen the MMA actually out performs the CMG product.

Robert A.

Thanks for clarifying a few things. I makes much more sense now. That is a better way to look at it. the only problem i see is people who don't have the equity to invest. So maybe this is where MMA can help, because it increases your equity about 2-3x faster. Then you can look into investing. thanks robert, You're a breath of fresh air, compared to most of the crazys that linger around these forums.

Rich...First off, CMG is not the only solution and many can be set up with little or no cost. It depends on what you end up doing. I do not recommend spending $3,500 for "software", especially when the software sellers are saying it is the software that makes the savings. It isn't really the software, but rather the "disposable income" that accelerates the mortgage. Many can accomplish the same thing without software, and most people that decide to employ this strategy could more than likely do just that.

Robert K...I am glad that things have been clarified. I still do not recommend using a MMA or other style product to pay down the "base" mortgage as you minimize your tax benefits as well as delay investing. However, some may want to do that nonetheless to get started. Everyone is different and, thus, every strategy needs to be different. That is why it is extremely important to find a mortgage professional that can analyze all options and strategies to ensure the best solution is implemented.

JUN

2007

Robert,

I understand but that still doe's not answer my question. Are there closing cost associated with the CMG product and if so how much would they be for a 200k loan?

Rich...Actually, I did answer your question because I do not know your situation and so the answer could be $0. Regarding a $200K loan, I would not recommend that much as you would likely be better employing a different approach, such as a cash-out refi, then adding this strategy to it.

Again, costs and strategies are dependent on the particular homeowner's situation and startegy.

Robert,

Actually you did not answer my question. My situation is that I want the CMG product- I do not need any other type of strategy. I want to acheive paying of my mortgage in the least amount of time by only using a simple means of doing so, that being my disposable income. Nothing more nothing less. I do not want to invest my disposable income or any other money or employ any other strategy to acheive this. So, based on my earlier question that I do not feel you have answered, what would the cost be on the CMG loan for 200k?

It is a very simple question.

Rich...OK, you have specific focus and are not open to this strategy. Therefore, this question is not posted in the proper location. I suggest you post your question to a more appropriate post of mine and I will be happy to answer it there.

I ask this so that readers will not get confused on the subject of the post since this strategy does not work to pay off the loan as fast as possible, rather to build wealth as fast as possible. You can also send me an email to review your specific situation at askme@floridaloanadvocate.com and I will respond via email or possibly even post your information on my newest blog at www.floridaloanadvocate.com.

Thank you for your understanding and cooperation and for keeping this post on the main topic.

Robert,

I apologize for asking my question in apparently the wrong forum/blog. I was simply going by the comment in you first paragraph.

Quote " The CMG ownership accelerator ( Which I am certified on and offer) is a great tool for this type of strategy. And once set up, the cost are minimal if any."

It almost seems as though you are trying to avoid my question. It would have taken you less time to tell me what the cost would be as opposed to your last response. Unless you are trying to use smoke and mirrors by saying that the cost of the CMG product is more than offset by the amount of return that one could expect to receive by utilizing the " Harvesting" technique. Cost are cost. Someone offering the MMA program could essentially say that there is no cost for the software because you would be saving ( hypothetically) 150K in interest charges. Furthermore the " Harvesting" concept could work just as well and probably better than the CMG product based on what I have seen, Please correct me if I am wrong. So as a consumer if I did have to decide on one of these tools should I go with the one that cost me the less amount of money?

JUL

2007

Rich,

No smoke and mirrors involved here, again pointing to staying on topic. CMG is but one choice. Every choice has different costs. Some HELOCS do not anything at all. Others cost very little. They depend on how much you want to set the HELOC up for. Your situation is different, hence it does not belong under the topic of this strategy. That is why I politely asked you to stop commenting under this topic, to eliminate confusion for the readers.

The decision you need to make is whether to follow this strategy or the one you stated you were going to follow.

Robert,

Fair enough. Which one of the blogs that you use to "bash" the MMA product, would you like me to continue this discussion on?

JUL

2007

Robert,

Great information. Your posts are always very informative. It is a great service to provide the total picture and show how the mortgage can be a tool in creating wealth.

JUL

2007

Rich...I do not "bash" the MMA product itself as it can be a good tool and may be the best solution for some. I want readers to realize some things though. There are more options than simply United First Financial (UFF) and thatthey need to seek someone fully qualified to analyze ALL OPTIONS in order to be certain they have not been simply "sold."

I recently had a lady from Canada contact me and in our discussion, she mentioned that since the MMA product was not available in Canada, the UFF agent said that she could easily do the same thing on her own. By the way, from what I learned of her situation, I recommended she do a variation of one to get started.

However, I suggest posting your questions under the following topic...Money Merge Accounts: Are They Really the Best Thing for You? or even Money Merge Accounts Vs Equity Harvesting: Harvesting Wins by Over $1.5M

Shekeria...Thank you for the compliment and I am glad you enjoyed this post and the others.

AUG

2007

Rich,

if you read this before my post is deleted, the closings cost for the CMG product are ALOT!!!!!!!!!!!!!!!!

Don't let them fool you

Casey...I deleted your other post as your points were not accurate and I didn't want to waste time responding ot them.

Regarding this statement, compared to the MMA? Are you kidding. That is not a valid statement as you eluded to in your other comment and I have mentioned before numerous times. It depends on how much you set it up for.

You talk about the CMG loan costing up to 5 points. OK, let's run with that. Use the strategy I mention here and you will likely not set one up fro more than $10,000, or $20,000 at most. 5 percent (5 points) equates to $500 -$1,000, or roughly $2,500 less than the MMA.

Once again, comparisons of apples to oranges which just doesn't work, sorry. By the way, how much of an ALOC comes with the software for free? From what I have been told it is a relatively low amount as well.

Side Note: And I would be happy to attend one of your seminars if you invite again. I cannot guarantee I will be able to attend, but give me enough time and I will try my best.

AUG

2007

Update...(required due to unfounded character attacks)

Apparently, UFF agents and other advocates of this program feel the need to attack my character to try and discredit my opinion, again believing I am against the MMA type product, to which I am only against the BS associated with it.

If you think I am not an expert on the subject or do not understand the product, so be it, you are entitled to your opinion. However, read the post, and I mean read it. In fact, read every post I did on the subject and formulate your own opinion. Here they are and this comment will be added to each post for easier navigation....

Money Merge Accounts: Are They Really the Best Thing for You?
Money Merge Accounts Vs Equity Harvesting: Harvesting Wins by Over $1.5M
Equity Harvesting, Money Merge Accounts and the Benefits of Using Both (do not formulate an inaccurate opinion of me before reading this) Also, a UFF agent and fellow AR member, Jason Leone said this in a comment on his own post (originally attacking me)...

"It seems Robert and I got off on the wrong foot and have been in direct communication vial e-mail. Both of us had the same intentions in posting our blogs. Robert felt that the people advocating the MMA were not showing both sides of the coin and I felt the same way about the equity harvesting post. Robert and I are in agreement that their is no one strategy that is right for everyone.

I have edited my initial and quite frankly harsh response and would like to state that I am proud to call Robert a Colleague and fellow CMPS."

Money Merge Accounts: Are You Dealing With a Professional?
Does Your Competition Hate You?

Ok, two other answers to questions about me others mentioned...

1. I have an agenda, just like everyone else. Only my agenda is like Jason came to realize. I am about spreading the truth about these and how they are being marketed. They are not a "magic pill" or even the best solution for most Americans. The best solution depends on the homeowners unique situation and you need a mortgage professional that understands all options to assist in finding the best solution for you.

2. The reason for cutting off the non-member comments is that spamming was getting out of hand. Anyone who understands SEO understands that when you get to the top of the list on Google, comments simply trying to direct you to their site occur and do not provide value to the post anymore. I mentioned this fact on at least one post before yet many of my attackers feel that I did it for other reasons. Google my name in quotes ("Robert D. Ashby") and you can read their opinions about me.

Now, my character attacks can easily be seen as unfounded, especially when you look at what Jason Leone has to say about me. So, again, formulate your own opinion, but understand who I am and what my character truly is by reading all of the posts on the subject and others of mine as well. You will clearly see their opinions are faulty, or you may still agree, it is your choice.

Robert, Once again you have written a great post. I am sorry to see that you are having personal attacks as well. People need to just grow up!. Thank you for your support.

Hey Robert,

Thanks for your post on this...it might help some out there looking for this type of program.

I really learned something from this post I like new concepts and tools Thanks for the post.

Hey Robert,

This was a question I originally posted in the comments of my blog CMG and their Home Ownership Accelerator Program. Glad to see you are running with the idea.

Have clients been receptive to the idea of combining the two programs?

Everyone...Thanks for your comments. I was trying to figure out earlier why I started getting more comments on this post which was actually written way back in June (6/26/07 to be exact). I found that after I commented an update comment (above), which was due to unfounded character attacks by UFF proponents which included false, or at least unfounded, statements, apparently the post was reposted for today (not sure how or why) and even got featured. Thanks to the AR gods for doing this for this post.

Rebecca...I am glad the post got reinserted so you could learn from it. I like "blowing the box up" with innovative strategies where I can.

Dennis...I remembered that post, although in all honesty I am not sure the comment was about this particular strategy. I will have to go back and review it, but kudos to thinking along the same lines.

I think that there are a lot of "One size fits alls" from the MMA to the reverse to the Option ARM... and it is funny that they have such cultish followings!

AUG

2007

Interesting post. Thanks for sharing the information. Appreciate it.

SEP

2007

Robert, it sems that the real subject for discussion is the "dead equity" in a house and how it should be used. The MMA people don't want to discuss this. For most of us (home owners not mortgage professionals) getting a return on our home equity while paying down the mortgage quicker is the best strategy. As a mortgage professional we want to first educate the people about this strategy and then sell them the program. What's wrong with that?

It seems like a win-win for everybody. If they are complaining about the costs then they don't understand that everything has a cost attached, even (or especially) education. If we get paid we can "afford" to educate them about the benefits of the CMG program or other similar products.

I'm glad this got a "star" as it is an important concept that needs to get out there.

Bill Roberts

SEP

2007

Robert -- thank you for this educational post.

SEP

2007

Bill - Well said. I believe in a multitude of programs including both option arms and the MMA program. It all depends on the client, their goals, and their risk tolerance and understanding. That being said, I get sick of hearing people mention the cost. Cost is relative.

For anyone and everyone out there that says "Why pay for the MMA software when you can do it yourself?", how about so you do it right! You can fix your car yourself instead of paying a mechanic, you can cut your own hair instead of paying a barber, you can make your own coffee instead of going to Starbucks, and to hit a little closer to home, you can get a mortgage without a broker, you can invest on your own without a financial planner, you can do your own taxes, and you can buy a house without a Real Estate Agent. Just because you can do something on your own, it doesn't mean you should!

Back to cost: I'm a believer in looking at the bigger picture when it comes to cost. $3500 is expensive if it's one shot out of your pocket and provides no value. However, that's not the case with the Money Merge Account. Something can either cost you money or save you money, it can't do both. If the MMA were save you 1 year of mortgage payments wouldn't it be worth it? You trade your $3500 for $12,000 or $24,000 or more in payments you won't be making later. I've run a ton of scenarios thru the software and haven't come across one that doesn't get the client out of debt in less than 15 years. That makes for a pretty hefty trade for your $3500 upfront that doesn't even come directly out of your pocket but instead is part of the overall plan.

Cost is not an issue. If it is, you better be car pooling to work in an old car and don't even think about buying a bottle of soda when you stop for gas on your way home. $1.50 for Pepsi is ridiculous when you can usually by a 12 pack of cans in the same exact store for $5.

It's the big picture that has to be considered. I primarily handle refinance transactions and I can tell you they are very expensive unless you are looking at the big picture. Especially when New York State swoops in to get their mortgage tax cut... but that's a whole other argument.

Jason

NOV

2007

This is a great thread. I love how MMA people are attacking Robert for being 100% accurate. The MMA program is agent friendly advice as opposed to client friendly advice. A $3500 price tag for a computer program is ridiculous, and the fact that most MMA agents can't see the potential of using a HELOC for Equity Harvesting doesn't surprise me. Someone needs to calculate how much faster a client can payoff their home, and how much more interest a client will save, by using a HELOC if they were to put the $3500 that they were going to use to purchase the MMA software directly towards the principal on their 1^st Mortgage.

That being said, I love the MMA program. In the last 4 months, thanks to the MMA program, I have gained 6 new clients and an additional $25,000 in income. They are doing a great job marketing Home Equity Acceleration Plans and letting people know that the concept exists. The agents that sell the software are typically inexperienced and have know real knowledge of the financial service industry, and the fact that they charge $3500 for the software makes them very easy to discredit.

When a client finds out that there are advisors like me, who will help them set up a Home Equity Acceleration plan for next to nothing, who do you think a client is going to use? I can tell you from personal experience that they are going to use me every time.

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