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 am glad Keith put a lot of caveats in his blog. Anyone can do mortgage acceleration on their own by taking everything left over in their checkbook each month and sending it to the mortgage company as an extra principal payment.
I tested the HELOC concept over and over. 98% of the savings comes from having extra cash each month to send to your mortgage company. The HELOC shuffle of moving cash in and out might yield you a couple of thousand dollars over the life of the mortgage, contrary to what mortgage acceleration program sellers claim. I ran many spreadsheets and have found that each dollar paid in interest to the HELOC is a dollar not paid to the mortgage. This will slow you down.
Having a HELOC as backup is valuable. If you send all your spare cash to pay the mortgage down, you need a ready source of cash for emergencies. Credit cards are a temporary measure as they must be paid off at the end of the month because of the much higher interest rate. Once you borrow from the HELOC, you will, of course, switch to paying off the HELOC.
It is important not to consider the HELOC as a savings account. If you have a major purchase to make, set up a savings plan and reduce your mortgage pay off money. Don't borrow from the HELOC for a purchase.
My issue with this is simple. They are charging 3500 dollars for a 30 dollar program. They have to do this because they are a multi level marketing company. (One of Utahs MANY) I think the savings verses doing this yourself vs having a program do it for you are far ofset by paying 3500 dollars up front. Sorry
Also if people were smart. (Which only a fraction of them are) They would have a HIGH rewards credit card with a 30 day no interest on new purchases. That way they put there paychecks into the heloc, the pay bills with the credit card and use the heloc to pay the credit card before incuring any interest. That will "float" even more money as it gives you the highest yeild possible. It also has a secondary reward as you get all those credit card points to spend on more fun stuff.
One last thing, This type of program is only for disiplined people. If you are cant balance your checkbook now. You still wont be balancing it after you get this program. Also as stated, the majority of the savings comes from making more then the minimum payment. You can do this anytime you want without this program as the author stated.
The advantage of the program is simple. It tells you when to do things. Anyways like I said I would love to see a 30-50 dollar version of this program and I suspect it will be coming soon.
If it's so easy to do on your own, then why is not one single person on this planet doing it? Because it can't be done with an excel spreadsheet accurately.
I ask all the people down playing this product, when is the pay off date of your mortgage? I'm very sure it's not in 10 years.
Unless you own it, don't knock it. I own it, and if you don't, you're getting screwed by your bank!
$3,500 to save $475,000 in interest, I would have paid 50k
You don't need a HELOC or MMA or spreadsheet to pay off your mortgage. All you need is discretionary income. Unfortunately, when combined with its $3500 fee and its wasteful way of using HELOC interest cancellation, MMA costs more than simply doing it yourself. Claiming that the program is 20% more efficient than the analysis is bogus.
If you truly believe that moving money in and out of the HELOC is the best way to use the "bank's money" and "leverage" your interest, than do it the correct way. Make a ONE-TIME INTEREST-ONLY loan from your HELOC equal to your take-home pay and put that toward your mortgage. Run all your income and expenses through the HELOC. Meanwhile use your discretionary income to pay down your mortgage. If you need extra cash, simply borrow it from the HELOC and pay it down to your take-home pay level, before continuing to pay down your mortgage. This is the simplest and most effective way to take advantage of the HELOC.
As to why more people don't pay off their mortgage? Why should they? I would rather have my money earning more in the long run than locking it up in my house. If I need emergency money, I will tap my HELOC.
Uh, James, I'm doing it with an Excel spreadsheet. Yeah, it works, but only because you are automagically paying extra money on your primary. The actual interest savings (i.e. the amount of interest saved that would not have already been saved by paying down principal every paycheck) is barley enough to cover the cost of the software over the average period of the mortgage holder's loan (i.e. aropund 10 years or less).
I love when people with no idea of the program profess to be experts. LOL
I works, I am using it. No disipline required. It texts me on my phone when to transfer money from one account to another to maximize intrest savings. Just follow program to be debt free!
Not only that, I am a rep showing others how to be debt free in 1/2 to 1/3 the time which they would NEVER do, if not for this program.
Run a FREE ANALYSIS and compare your results with ours!
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.
;)
;)
That is the Niftiest thing I have ever seen. Great Blog
Ben