Money Merge Accounts: Are They Really the Best Thing for You?

By
Mortgage and Lending with Robert Ashby Photography

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).

+++++New Post on the Subject+++++

Equity Harvesting, Money Merge Accounts and the Benefits of Using Both (newest post - a must read)

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Rainmaker
98,378
Robert D. Ashby
Robert Ashby Photography - Miramar, FL

Here is a new post showing a blended strategy allowing a good implementation of the MMA type product...

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

Jun 28, 2007 12:42 AM #126
Rainer
150
Thomas Lightfoot
Westhighland - Tubac, AZ

It never fails to amuse me that people think running your money thru a HELOC can generate any appreciable savings as compared to keeping your money in an interest earning account.

The HELOC part of virtually every mortgage acceleration product is simply a smoke screen, it doesn't generate any significant value at all.  Virtually all of the mortgage acceleration is due to the greater amount of money being sent, on average, to your mortgage company.

I've yet to see an analysis from a MMA proponent that beat simply taking the same amount of discretionary income and applying it to your mortgage (actually you'll be able to make slightly larger payments because you will earn interest on your cash flow and you don't have to pay interest on a HELOC loan).

Now why would someone spend $3500 when they can generate better results with a completely free, trivially easy to implement method?  The only reason I can think of is that they were mislead by the seller.

Aug 02, 2007 08:26 PM #127
Rainer
352
Casey File
West Palm Beach, FL

Thomas,

i don't think you really understand the MMA program as well as you think, no offense but it's obvious by your last comment.  Believe me, I thought just like you for the first month or two of hearing about this program.  Then I took the time to become educated, and now I'm one of the biggest advocates of the program. 

E-mail me if you have any specific questions..

Aug 16, 2007 08:36 AM #128
Rainmaker
98,378
Robert D. Ashby
Robert Ashby Photography - Miramar, FL

Thomas...There actually is a slight benefit of using the HELOC side due to its interest being calculated on an "average daily balance" versus monthly in arrears as regular mortgages are.  There are significant limitations on this strategy that is not mentioned by any proponent of this product. 

Every presentation I have seen has portrayed a "perfect" scenario that makes it appear much better than it is.  Also, many will state that it is the software thta creates the savings.  That is truly not the case, although the software will help by spoon feeding those who need just that.  The real savings is based on depositing discretionary income towards your mortgage, plain and simple.  Definitely not worth $3,500 (in my opinion), but there are cheaper alternatives.

What I find very interesting is that UFF agents tell you no refinancing is involved at that the cost is only $3,500.  What they leave out is the fact that if you do not have a HELOC with the "special features" in place, you will have to set one up.  Extra costs?  You bet, in one way or another.  There agents will even recruit off that saying you can earn a double commission because you can get paid on the HELOC as well.  You decide, but I started posting about these being OK, but more than likely not the best solution due to them not being fully honest nor using other startegies in comparison.

Aug 17, 2007 08:39 AM #129
Rainmaker
98,378
Robert D. Ashby
Robert Ashby Photography - Miramar, FL

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.
 

Aug 30, 2007 05:47 AM #130
Rainer
4,510
Christine Melcher
Fifth Third Bank - Brunswick, OH
The Loan Lady

What a contraversial subject.  I didn't know anything about this product and although I'm not sure I understand the benefit of the HELOC rather than simply putting all available funds towards principal each month.  Arent you paying a higher rate on the heloc than the ist mortgage nowadays?  Wouldn't the results be greater if a homeowner simply puts all available resources towards principal assuming mtg rates are hire than interest income rates (savings, investments etc)

I'm sure you have integrity and believe in what you do and for the right reasons, I don't believe someone promoting ill will would bother to defend their character.

Sep 16, 2007 11:57 AM #131
Rainer
89,744
Jimmy McCall
TheHappyCottage.com - Cunningham, TN
The Ex-Mortgage Consultant
The one thing that disturbs me about your scenario is that you were not able to determine the clients ultimate goal.  Is their goal to pay off their house or is it to built wealth?   If it is to pay off their house: 6.9 years is a lot better than 30.  No matter how much potential money they may be able to make.  There is something about having no mortgage.  Even if, they have more than enough cash on hand in the bank to pay off the mortgage several times over.  Never discount the clients desire to be mortgage free.  
Dec 20, 2007 01:55 PM #132
Rainmaker
98,378
Robert D. Ashby
Robert Ashby Photography - Miramar, FL

Jimmy,

I suggest you go over and visit my personal blog site and you will see a better side by side comparison of strategies that is based on UFF's own presentation.  Click here for the Money Merge Account Series.

As for your point, that is exactly why I stress the need to seek a FULLY QUALIFIED expert that uses ALL strategies to find the best solution.  The person in this scenario only gave me limited information and I was unable to go through my full MEDS™ program with them to ensure they got the best solution, hence why I keep saying the best solution depends on your specific situation.

What I can say is that of everyone who has come to me asking for advice from this post or as actual clients has by a long shot, been better off following another strategy as I mentioned.  Almost always, the mortgage acceleration programs do not even allow for the quickest pay off times.  Additionally, even in this scenario, the client has more options and flexibility using equity management versus mortgage payoff.

Again, please visit my other website and follow the series as I am putting it together in order to understand the truth behind the various strategies and why these are likely not the "magic bullet" for you (or anyone).

Oh, and I don't discount the desire for the client to be completely debt free.  I do however educate them on what home equity is, what focusing on paying off the mortgage does, and why other strategies work better.  Paying off the mortgage is a noble goal, however, if it sacrifices the remaining parts of the overall financial and investment plans, its nobility is destructive.

Dec 20, 2007 10:09 PM #133
Rainer
125
Phil in PA
private - Pittsburgh, PA

Robert: It has been fascinating to follow this topic on your blog ans elsewhere. I noticed that last Fall you linked a fairly negative article by "The Mortgage Professor" on HOA plans- and the man DOES know mortgages. Have you seen his most recent article?

http://www.mtgprofessor.com/A%20-%20Early%20Payoff/the_cmg_plan_using_your_mortgage_as_a_checking_account.htm 

Fair to say he is a convert...not for everyone, but for responsible adults that are cash flow positive- pretty much ideal in its flexibility. Still trying to determine if it's right for me, but thanks to everyone that contributed!

P-

Jan 18, 2008 08:22 AM #134
Rainmaker
98,378
Robert D. Ashby
Robert Ashby Photography - Miramar, FL

Phil,

I am glad to see Guttentag is now in better understanding of how these types of programs, however that does not change anything I have said.  If you have read my posts across the realm of blogs I write for, you will see I am against one type of mortgage acceleration program (the Money Merge Account - MMA), but actually offer the use of these types of products and even recommend them in some straegies which I am at the forefront on, such as my equity harvesting and HELOC combo which I was the first to highlight.

What I have repeatedly stated is that these programs are rarely, if ever (I have never seen it outside of my posts) compared with other strategies that tend to be more beneficial for the vast majority of homeowners.  The rules of money dictate that truth.  Unfortunately, almost all who push these products, especially the MMA, fail to understand the rules of money to their fullest.

Now, every client's situation is unique, so their best solution is unique as well, derived from an analysis across the financial spectrum, not just a 1003 or application for expensive software.  What I advocate is educating borrower's on the strategies and concepts that span the spectrum.  WIthout that kind of knowledge, the "real" best solution will never present itself correctly.

Jan 19, 2008 06:11 AM #135
Rainmaker
98,378
Robert D. Ashby
Robert Ashby Photography - Miramar, FL

Phil,

Thanks for posting that link as I was unaware of the conversion.  I am glad to see Guttentag is now in better understanding of how these types of programs, however that does not change anything I have said.  If you have read my posts across the realm of blogs I write for, you will see I am against one type of mortgage acceleration program (the Money Merge Account - MMA), but actually offer the use of these types of products and even recommend them in some straegies which I am at the forefront on, such as my equity harvesting and HELOC combo which I was the first to highlight.

What I have repeatedly stated is that these programs are rarely, if ever (I have never seen it outside of my posts) compared with other strategies that tend to be more beneficial for the vast majority of homeowners.  The rules of money dictate that truth.  Unfortunately, almost all who push these products, especially the MMA, fail to understand the rules of money to their fullest.

Now, every client's situation is unique, so their best solution is unique as well, derived from an analysis across the financial spectrum, not just a 1003 or application for expensive software.  What I advocate is educating borrower's on the strategies and concepts that span the spectrum.  Without that kind of knowledge, the "real" best solution will never presents itself correctly.

Jan 19, 2008 06:12 AM #136
Rainer
125
Rick Black
RB Holdings - Louisville, OH

Thanks for the education!  As a business person, I see many uses of interest cancellation programs that haven't even been brought to discussion because each person's situation is different and requires total perspective and due diligence.  Do the following ideas merit discussion by those who actually have cash flow to manage?

1. My variable business revenues sometimes leave me with $40,000 sitting in my business checking for a few months.  I am interested in the MMA offered by United First Financial and wonder if I couldn't park a portion of this excess temporarily available cash on the MMA that runs alongside the 1st mortgage.

2. The same rule applies to my payroll.  I have to collect the money to make payroll, so instead of collecting it in my business checking account, would it make sense to park it on the heloc, even if only for one week, thereby reducing interest by the amount of payroll set aside on the heloc?

3. My property taxes are not escrowed and are paid semi-annually.  Let's say my property taxes are $500/month.  After two months I would have $1000 resting on the heloc waiting to be spent on month six.  On month three, I would have $1500 resting on the heloc, reducing daily interest calculation until it is spent on month six.

4.  When considering the interest expense angle of financing, shouldn't results be compared to the other end of the spectrum -  increasing sales (W-2 if that is how you earn your money, get a better job) ?  One option is to increase business by expanding sales.  That costs money and results are not guaranteed.  If this approach works, I only gain my pre-tax profit margin, and then I pay income tax. 

If I work the interest expense angle, I avoid the cost of increasing sales and don't have to pay income tax.  I pay my debt, save save lots of interest.  A friend ran 134K of debt on the MMA analysis software for me.  That debt would be paid in 4.3 years according to the software.  Also, my monthly outgo for that debt would decrease by $1600, saving me $82560 over 4.3 years.

If I earn a profit margin of 20% (forget about taxes for a minute) I need to gross $5.00 to find $1.00 profit to pay.  Does this mean that if I would have needed to pay $82560 interest saved by the MMA, that I would have to earn 5 times that ($412800) if I had paid the interest instead of using the MMA?  And that is assuming that nothing in business changes, just as a W-2 person would assume that nothing changes with their job over 4.3 years. 

5.  Also, if I find the MMA program works I would share it with other business and personal friends.  If they buy in under me there are substantial commissions, with very little costs, but significant gains for the right people.  Any certified mortgage planner also stands to gain income from recommending any program or combination of them.  Are each of you, yea or ney MMA, actually running the analysis software offered by United First Financial as you choose what is best for your clients?

Managing interest expense, whether it be business or personal, seems to be more significant in results than trying to be more productive on other fronts like increasing income because net doesn't increase at the same rate as income due to steadily increase costs like inflation, and taxes.

Have at me!  I will read every word you write.

Thanks.

Rick 

 

Feb 18, 2008 03:08 PM #137
Rainmaker
98,378
Robert D. Ashby
Robert Ashby Photography - Miramar, FL

Rick -

Q1 and 2 -Never mix business money with personal finances as you can get into a lot of trouble that way. 

Q3 - I would recommend placing that money is a separate vehicle for a couple of reasons.  One is that you can not carry a "positve" balance on the HELOC, therefore placing the money into the HELOC will require spending it elsewhere.  If using the MMA program, it will suggest using it to payoff your mortgage and then the money is lost in essence.  There are other reasons, but those may not fit your situation.

Q4 - Again, a business question and should not be co-mingled with personal finances.

I can see you are thinking outside the box and that is good.  Can the MMA work for businesses that are utilizing the interest cancellation effect?  Quite possibly, yes.  But that is a different discussion altogether.  Businesses carry different thoughts and should not be intermixed with this discussion so as not to confuse the majority of readers.

Also, intermixing business funds with personal finances can bring a lot of trouble.  Besides ethics and other issues, the IRS may have a take on it as well in terms of interst cancellation being additional income derived from your business, etc.  Consult a tax advisor and others, but I wouldn't even go that route if I were in your shoes.

Feb 22, 2008 12:23 AM #138
Rainmaker
46,757
Jean Doyle
RE/MAX House Values - Mount Arlington, NJ
Morris and Sussex NJ Real Estate
I was recently introduce to the MMA program and while doing my research came across this great debate. Thanks for the information on both sides. Points are well taken. While MMA may be for some, there are obviously many options available to the homeowner to grow their wealth. The key is to treat each situation/client separately. We don't all fit into the same box.
Mar 15, 2008 02:25 AM #139
Rainer
4,985
Joseph Skinner
Skinner & Associates Realty - Myrtle Beach, SC
Myrtle Beach Real Estate

Very nice post with good examples. Some of my clients ask me questions regarding loand, since I am a realtor and not a loan expert, I refer them to a loan officer. I remember one of my clients asking me about this time of loans. Thank you for the post.

Jay

Mar 16, 2008 08:05 AM #140
Rainmaker
184,689
Steve Baklaich
RE/MAX Results St Cloud Mn real estate - Saint Cloud, MN
Treating Buyers & Sellers to Full Service Always.

Did anyone ever answer C's post from 3/27/07? I went down several months more thru this thread and never found any answer to his post of what else should he do in his situation if not the MMA. Did I miss it? He provided a perfect example for you to work with and an opportunity to see the arguement between approaches in action. Seems to me like he must have gone with the program.

 

Apr 11, 2008 01:24 PM #141
Rainmaker
98,378
Robert D. Ashby
Robert Ashby Photography - Miramar, FL

Jean, Jay and Steve - Thanks for joining in.

Steve,

It was a while ago that C posted the example, and I do not honestly remember if his question was answered.  I believe I was contacted by him and, as I have told others, asked to send me an email with his example and I would give my honest opinion.  The reason for taking it offline is due to personal questions I ask.  I go deep into their current financial state and their mindset, followed by education as needed or desired.

I have had hundreds of emails of people seeking this, and other mortgage acceleration products, contact me for my opinion based on their own unique situations.  I will also point out that these are people outside the state, so I cannot generate income from them.  Nevertheless, I can only recall that 2 or 3 were actually better served by these strategies and once I had discussed all of the concepts, most chose other strategies.  Some of their testimonials can be found here or on my other blog, www.flmortgagereport.com.  I will add more as I have time, or at least change them up once in a while.

I do not know if C went with the program or not in all honesty as I have not heard from him again.  Again, not recalling if we entered discussions offhand, I am guessing other options would have been proven more beneficial over time, should he haven chosen them.

Apr 14, 2008 02:37 AM #142
Rainer
150
Aaron Moncur
Thepayground - Mesa, AZ

For what it's worth, I've gone through several Excel models and have come to the conclusion that the Money Merge Account only works well if you have debt - the more the better.  Otherwise, you really can do this on your own.  Of course, if you're horrible at managing your money, than perhaps $3500 is not too steep a price to pay for a tool that will help you build equity in your home quickly.

Regardles of whether or not you use the MMA, I believe that having a HELOC is in most people's best interests (again, this is assuming you're financially responsible and aren't going to go out and buy a big boat or something).  In my opinion, one of the biggest benefits of the MMA is that it forces home owners to open, use, and understand a Home Equity Line of Credit.  These can be used for so many things, and there are several "secret" methods to minimizing your payment on the line each month.  You can, without much difficulty at all, save several hundreds of dollars each month provided you incorporate the right strategy.  Buy this book and read it for more info on those strategies: http://thepayground.com/heloc_home.html

Jul 05, 2008 03:24 PM #143
Rainer
235
Houses Foreclosure
- - Apalachicola, FL

Looks there not

Sep 20, 2008 04:03 PM #144
Rainer
334,074
Paul Gapski
Berkshire Hathaway / Prudential Ca Realty - El Cajon, CA
619-504-8999,#1 Resource SD Relo

Thank you for sharing your blog; we need Real estate Professionals to share their comments and information regarding their markets and experiences. Thanks again from beautiful Sunny San Diego

Jul 14, 2012 11:26 AM #145
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