This revolutionary product is a good product for some, but the reality is that it may prove more costly to you over time.
Money Merge Accounts, or whatever else companies would like to call them, are good loan products for certain families. However, if you are a disciplined family and want increased safety and rate of return for the long run, these products will ultimately cost you considerably over time. A family who came to me to ask about these programs and if it was best for them ultimately realized they could do better.
This particular family is what I would call the ideal candidate for Money Merge Account programs and in fact the "simulator" that the company we use to offer this product shows that they would be able to pay off their mortgage in 6.9 years!!! That's phenomenal, right? If that remains to be their ultimate goal, then this product would pay off their loan the fastest, hands down according to the simulator.
However, if their goal is to build wealth over time, this loan program will actually cost them over $110,000 during the course of the next 30 years. Doesn't sound like much, does it? Who are you kidding; anybody would love to have an extra $100,000, wouldn't they?
How is this possible? They can achieve it through proper equity and debt management. Let's look at their exact scenario...
Estimated Home Value = $400,000
Current Mortgage = $196,000 with an $1100 P&I payment (4.875% 30 Year Fixed)
Income = $4,500 net per month
Monthly Expenses = $1,500 per month
Credit Cards = $20,000 ($600.00 per month @ 18%)
Auto Loan = $15,000 ($550.00 per month @ 5.5%)
Discretionary Money = $500.00 per month
When we look at the whole picture, and implement a properly integrated mortgage plan for this family, we find that we can do better. In fact, while it would take you a little longer to be able to pay off your mortgage, the power of compounding interest and not paying off the mortgage will result in $112,497 extra money.
Here is the recommended mortgage plan structure...
Cash-out refinance = $296,000 (30-year Fixed, Interest-Only @ 6.625%)
Pay Off Credit Cards and Auto Loan (same as MMA)
Setup Investment Account = $55,000 (remaining amount after refinance - earns 8%)
Tax Rate Used = 25% (Marginal Tax Rate may be higher for this couple)
Discretionary Money Used towards Investments (MMA uses towards mortgage payoff)
Using this mortgage plan and having the discipline to invest their savings, this couple would have accrued $2,580,662 in their investment account in 30 years. In comparison, using the MMA program and then investing the entire monthly amount into the investment account after the mortgage is paid off, the investment account would only grow to $2,172,165.
As you can see, even after paying off the mortgage in 30 years, the couple would have an extra $112,497 by using a proper mortgage planning strategy!!! Also, the point where they achieve true financial freedom, the point they could pay off their mortgage, is only delayed by 1.5 years.
This particular couple lives outside Florida, so I have nothing to gain financially by assisting them. Also, I am certified by CMG on the Home Ownership Accelerator product (a MMA type product).
Equity Harvesting, Money Merge Accounts and the Benefits of Using Both (newest post - a must read)