Do you want that ultimate mortgage pill to relieve your debt?

By
Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

 

mortgage pill

How many of you have seen those commericals for new pills that will help you lose weight?  What about the new ab machines shown on TV, showing how you can cut inches off of your waist and lose 20lbs or more. But every person on TV looks in great shape to beging with. And the before and after pictures tend to be a joke. The before pictures, these people look dumpy with ugly clothing and their hair is messed up. In the after pictures, not only do their bodies look better, with weight loss, but the clothes that they are wearing make them appear to be better dressed. Not only that, but their hair looks proper and they actual have a smile on their face, as opposed to the before picture to where they didn't have a smile on their face. Did you ever read the small print that says that you need to diet and excerise for any of this to happen? Where am I going with all of this?  Please read below....

 

 

save money There are a many advertisements out there that the average consumer needs to be aware of. They are found on TV, in magazines, sometimes coming in mailers to your home, in blogs, and even here on Active Rain. I respect people's opinions, but when it's easy to disprove opinion with facts, how can one argue with you then? If the numbers are done accurately, there should be no misunderstanding then, right? How about those that tell you that your monthly spending habits won't change, but that they can save you thousands of dollars. Or cut up to 20 years off of your mortgage. I don't care if they have flashy programs that say otherwise. Let's use common sense. Let's go back to the old theory that you need to spend money to make money.



So, what kind of programs or advertising am I talking about?  That you should be made aware of?

  • Let's start with a basic one. The "No Closing Cost" loan or the "no fee" loan.  Some companies advertise this under different names. But again, common sense. How would a company make any money if they didn't charge you anything?  Keep in mind, we all get the same money from the same place. All the lender is doing is raising your interest rate by about 3/8 to 1/2 percent to cover all costs.
  • Then there are the Mortgage Accelerator Programs. These programs come under so many names and disguises. Such programs as MMA by UFirst Financial, the Mortgage Magic System by Real Simple Real Estate, or the mortgage accelerator program from CMG, which is a first lien heloc, and the Australian Mortgage. Overall, they all have the same function, even though some of them state that they are better than the next. Keep this in mind, they are programs to show you how to pay down your principal quicker. I'll talk about this more in a minute.
  • What about sales people selling you the bi-weekly mortgage plans, even after you settle on your mortgage. It's the same thing, just on a smaller scale. There is a set up charge. Please read below for the answer.

 

Here is a comment from a blogger just recently. "I can speak for the several products that I am familiar with, including my favorite, UFirst Financial, they are not dangerous."

That comment alone is a dangerous comment in itself and in my opinion, a typical sales comment and approach to try to make you feel comfortable. These programs can be dangerous and I will point out the reasons why.

Here is a comment from someone about the Mortgage Magic System. "The system is a technique that uses the homeowner's regular income to reduce their mortgage. The system cuts hundreds of thousands of dollars off the cost of a home. Real estate professionals need to know about it."

 

realty check

 

 All of these programs, one way or another, try to sell you the idea that you don't alter your spending habits. Some will say that you don't have to add more to your mortgage payment, to reduce your principal of your mortgage. They tell you that you need to get a HELOC loan in order accomplish this. That you basically need to keep most of your pay check deposited into the heloc account or into a separate account. And then you take that money from your other account and deposit it into the heloc account. You use this money to pay down your credit cards and take the extra money to be applied to your mortgage, but from this account.

 

 

Few interesting points with this. 

  • But wait, I need to keep most of my pay check in another account to make all of this work?  YES !!!!!   Some of the people selling this tell you that you can spend some of your money and that it won't affect the whole scenario. But there are a lot of "what if's" involved. They won't use the term 100%, that they are 100% sure of this. Gee, I wonder why they don't use this term.
  • Keep in mind, you need a heloc loan. Many negatives with heloc loans. Not only are the rates higher and that the rates can change monthly.  But that the bank can freeze your heloc at anytime, without warning. Ouch... but they don't bring this up unless you ask or someone as myself that tells you about it.

 

Overall, do these programs work?  Yes.  Can you do them on your own, without paying start up fees from $350 to $3,500? YES. It all comes down to making extra payments yourself. The programs mentioned above, in my opinion, are just smoke and mirrors. They tell you that it's much better than paying down the principal yourself. But you know what, I have run the numbers on them all. 

They also tell you that banks have a secret that they don't want you to know and they are going to reveal it to you, to show you how to avoid paying tons of interest. Again, sales chit chat. Many of these people that sell these programs have also been brain washed. Yes, these programs can woo you. They woo'd me until I took a closer look and as I stated, ran the numbers as axamples on each one. Yes, I have used the programs. The bottom line, that any of these programs take discipline. You need to be disciplined to keep your pay checks in these accounts. They use examples of keeping a thousand dollars of your pay check per month in these accounts. How many of you even have this much money left over per month?  Besides, if you putt this same amount extra into your principal per month, you would get the same results. And sometimes a better result, because you aren't paying extra for a program. You are doing it by yourself. And one more note to end on....  these types of programs would only work for about 15% of the people out there to begin with. Why?  You need credit scores above 680 (in most cases) and you need at least 20% equity in your property for the heloc. And think about this, most people that don't have many credit cards and are disciplined, don't need a product like this.  The people that usually need help are those that live pay check to pay check, don't have much equity, or don't have the discipline. Hence this is where it can be very dangerous. Because if you don't follow the program, you will be worse off. Just like so many that did those pay option arms. All of this goes back to my original opening paragraph. You can think about losing weight all you want, with the help of diet pills and certain types of machines. But it takes discipline. You can do the same without the fancy products or false hope.

 

 

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Copyright © 2008 by Jeff Belonger

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

Comments (28)

Larry Bettag
Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL
Vice-President of National Production

Jeff, I agree that "overall" these programs work, but I think that as you state, they should be limited narrowly so that they're used properly.  Right now they're all the rage as the next big thing on the market.  I have moral problems with such blanket uses of U First.  Yes, it's awesome, for the population that it's designed for.

Jul 05, 2008 03:24 PM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

ZACHRY......  well, I do believe some products are still bad for the most part because it also comes down to the loan officer and how they explain it. Hence why I think that the products mentioned above, are bad, even if they work... because you can still obtain your goal without these programs. Which would also save you the fee of buying these programs.  But yes, being disciplined is key and so is misleading people in regards to that unrealistic dream.

 

NANCY...   I still disagree with a bank offering the bi-weekly payment, even if it is free. Why?  Because you can still do it cheaper by yourself. Do you realize, that you are still paying interest, when they take two payments out per month?  All I need to do is add just one payment extra per year on my own and it woud all go to principal, no interest at all. Sure, we are only talking about pennies, but pennies add up.

Lastly... I know I read somewhere, that you mentioned that there is a fee if that person selling this feature, wanted to make some money. But here, you say that you don't charge. I would love to see the paper work on this and a HUD....  just wondering why you would sell one or the other, to make extra money or not...  it's almost like a title company telling me that if I give them tons of title orders, that they will pay for my advertising.... yet the title fees would be a little higher.   Kind of defeats the purpose of trying to give your client a good deal, right?

 

LENN.....  well, if you are willing to pay for them, are they actually good then?  Usually not.... at least in my opinion. Just as I mentioned to Nancy, in my above comment.

JIMMY...... my problem is that there is one AR member running around here saying that these are great programs, that I am missing the point. The sad thing is that I have run the numbers on both.  And the old fashion way of adding extra principal yourself comes out better. And it's more than just my opinion, but true facts when showing the numbers.

JASON......  I crack up when they say that this or that is an awesome product, but you see all of this fine print at the bottom. And as I type this, there is a DITECH commercial... lol  No hidden fees they say.... okay, but they give a low ball rate on tv, which you won't get later on, once they finalize something. Especially when it all comes down to your credit scores now... sad... hence why we need to educate people more on these topics.

BOB.....  thanks...  but don't get me wrong... the pay option arms were good for many reasons also... but you needed to know both the pros and cons. Most loan officers just told you the pros and would mislead you on the cons or leave them out completely.

CAROLE.....  my dad just got an advertisement in the mail and showed it to me.  It said, urgent and official on it.... LOL  SAD....

LISA H. ....  lol.. yes, so true. I can only do so much....  some people will just go to those that make statements that sound too good and will realize when it's too late.

LARRY.....  even thought they may work for the few, there are still cheaper methods.  Some people make these programs sound like the end to all, which is what really gets to me....

 

Jul 05, 2008 04:09 PM
Gary Miljour
American Financial Network, Inc. NMLS#207208 - Southern Pines, NC
Mortgage Originator NMLS Licensed in AZ and NC

Jeff,

Thanks for exposing the issues with these type of programs and the way they advertise them.  I still get calls from past clients that get something in the mail that is way too good to be true.  I then have to spend the next 15 minutes explaining the advertisement was sent out to accomplish 1 thing and that was to get the client to call them. 

 

Jul 05, 2008 06:55 PM
Anonymous
Ray

Excellent points in this blog. I would just like to add that Equity Express now offers a biweekly payment service absolutely free of charge to the consumer. Since we service Tens of Thousands of loans we are offering the homeowner a free biweekly conversion to assist in these hard economic times. Equity Express is servicing biweekly payments with every major lender in the USA and is the only biweekly company approved and built into Calyx Point, the software used by 70% of the mortgage industry. Equity Express: (888) 438-5536

Jul 06, 2008 03:33 AM
#12
Teri Eckholm
Boardman Realty - White Bear Lake, MN
REALTOR Serving Mpls/St Paul North & East Metro

Jeff--I have seen some of these ads too...very scary and if people aren't careful they can make a difficult situation worse...much worse. There is no quick fix...people need competent advice!

Jul 06, 2008 04:20 AM
Carol Lee
Dilbeck Real Estate - Oak Park, CA
Realtor - Agoura, Oak Park, Westlake CA Homes

I think a lot of people don't take the time to read through all the BS and sales talk, and think things through. That is why home buyers need to work with a mortgage broker that they know they can trust!!  (Like working with a realtor they trust, same but different.)  Mortages and loan programs are confusing, and there are heavy sales talk.

My theory0 if it sounds too good to be true, it probably is!

Jul 06, 2008 04:42 AM
Paul McFadden
Responsive Pest Control - Seattle, WA
Pest Control, Seattle, WA.

Thanks, Jeff. Sometimes we forget common sense even though we know something that sounds too good to be true. Ultimately, sometimes we need to learn from our failures or poor choices. I would hope everyone would take the time to examine some of these claims, etc. Because most of the time it just make sense to pass! Take care.

 

Paul

Jul 06, 2008 05:59 AM
Ronda Ching Day
Coldwell Banker Pacific Properties - Honolulu, HI
Call "Help Me Ronda" for your Real Estate Needs!

Great analogy.  We often rely on mortgage professionals to decipher what's a good or bad product.  So, it's easy to accept their pitch that this Accelearator program is great.  Your analysis that it doesn't apply to those people with little debt (credit card balances) and much discipline, etc. is helpful when determining whether we should be recommending it to clients...

Knowing the bottom line and also your client is helpful in customizing a plan.

Wouldn't it be great if you could devise a software analysis program to see whether a particular product was good for a client so we could have you in our pocket (computer)!

Jul 06, 2008 10:25 AM
Thomas Hargreaves
TriStar Financial Services - Eugene, OR

Great Blog Jeff,   I have marketing some of those mortgage acceleration programs.  I was an agent with U1st for awhile then I found a program that was much less costly to my clients and even allows them to recover the cost of the program.  Anyway the thing is most mortgage acceleration programs can be great for the buyer.  Even the option arm mortgages can be right under the right circumstances,  but you need to be disciplined and follow instructions.   How good is it for a home owner to go from a fixed loan to an option arm to free up $ 500.00 per month, if they go out and buy a new car with the freed up money?  Or for instance with the U1st MMA,  United First Financial would like the home owner to believe that the software is the integral part of the equation.  However You can do the same thing using an advance heloc and an excell spreadsheet, as long as you have the discipline to make extra payments at the proper intervals.   Anyway great post.

                                                                                          Tom

Jul 07, 2008 01:56 PM
Bo Hussung
Bell Title /Triserv LLC - Nashvle, TN

Jeff, All good points. I am going to play devils advocate and say the discipline angle is very valid, people are typically not good at saving, investing, etc. and in some cases even those that are good, do not have the expertise to keep up with it. Life is pretty freakin hard by itself. When I sold life insurance way back in the day (long time ago), the arguments were the same. You can do better than whole life, you can invest the money yourself and do better, etc. etc. Nothing much has changed in 25 years.

Okay having said that, I do think these programs have that, let's just say "opportunistic" element to them. However assuming there are some legitimate programs out there that can truly bring value to the consumer, some folks are simply too lazy to read the fine print and even if they do, they are too lazy or too busy to do it themsleves.

As for the no cost piece advertising gimic, there are mortgage companies that operate from a low cost  economics business model. Yes, rates are the pretty much the same across the board, but there are companies that can negotiate lower ancillary services (title, appraisal, etc.) to bring the overall cost down so that if indeed they are giving the borrower a truly competitive rate, then the portion of the transaction costs that are paid for by the lender /broker truly can beneift the borrower.

Incidentally, I am not endorsing these services and inmany cases there is no quid pro quo. Buyer always beware (Caveat emptor).....is good policy when dealing with finances! One a side note, our industry needs more, much, much more education and training requirements.

Good post!

Bo Hussung

Your title source!

 

 

 

Jul 07, 2008 05:48 PM
Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
Truth, Excellence and a Good Deal

Jeff,

All of a sudden I've been approached by several people about the U First program.  I patiently listened to the presentation.  It sounded great.  They said that you can pay off your mortgage in 10 years without changing your lifestyle.  I took that to mean that I wouldn't have to pay any more than I'm now paying.

When I got back to the office, I thought about the example they gave me and realized that it required you to spend an extra $1000/month towards debt payment.  I quickly found an online calculator which figured out how fast you can pay off a mortgage by sending in additional monthly payments towards prinicpal.  Guess what?  It came out to exactly what they had showed me. 

When they called me back to see if I was interested, I told them that there was no way I would spend $3500 for some software program that can accomplish the same thing as sending in an additional payment every month with my regular payment.  Then they tried to sell me on how the program helps you get financially disciplined.  They also said that  many people don't know about the power of prepaying your mortgage and it was  worth something for someone to turn them onto the concept.  That might be valid but it sure wasn't the pitch they used to get me interested.

I felt ripped off.  I wasted a bunch of time listening to this garbage, and found out it was what you said, just a lot of smoke and mirrors.

I was going to write a post on this but didn't want to have to fend off all the people who have drunk the Kool Aid.

Jul 08, 2008 11:39 AM
Larry Bettag
Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL
Vice-President of National Production

J...what's up with the new photo?  I'm stunned....I had to make sure it was you.....not used to seeing you w/out your daughter bro.

Jul 11, 2008 02:00 AM
Desiree Daniels
RE/MAX Tri County - Robbinsville, NJ

I stopped by cause I heard you became a pharmacist...   Is my prescription ready for pick up?

Jul 12, 2008 02:20 PM
Ron Brown NMLS #270845
NMLS ID: 40831 - Federal Way, WA

THIS WAS ORIGINALLY POSTED AT THE SCENE OF ANOTHER BLOG, BUT I'VE BEEN TOLD IT MAY HAVE SOME MERIT IN THIS DISCUSSION AS WELL. - Thanks, Jeff.  You can be counted on to give out "the real story" even when it may not be what folks wantto hear.

....

While there is some merit to these programs for a very specific, savvy investor, it is extremely rare to find that person in our business.  People come to Mortgage Bankers, Brokers, and Loan Officers because they are generally in need of our financial help, and advice.  Unless the client in question is one you have a great deal of knowledge of, and experience with, these products are most likely not for them.  I see where the statement is made above that people can be trusted to not stray from the disciplined path required to succeed in this product.  I believe statistics will show those few who have that level of discipline would be the "exceptions that prove the rule" rather than the norm. 

 

My 2 cents comes in the form of 2 questions:

 

If these products really worked as advertised, why isn't everyone offering them?  From the Banks point of view, we would rather get the money back quicker so we can "roll" it again.  After all, we made acceptable interest on it while it lasted, and we make money off of money, so the more we can compound the funds the better.

 

 Also, why is it that Macquarie Mortgage (one of the biggest "pushers" of these products) had to withdraw from the US?  I understand they have a very substantial market share overseas (over one third of the Australian Mortgage market, and around 25% in the UK), but there is a significant difference in mindset (read - likelihood to save versus spend) for most Americans.   The current US "service" economy has spawned a generation that has no predisposal towards savings,  we not only want it now, we feel we are entitled to it now!

 

If the buyer/borrower really had the necessary discipline to succeed in this product, they would probably be able to proportion enough of their savings into other investment vehicles that would provide a higher rate of return than that realized from the interest savings on their mortgage.  They would not only increase their rate of wealth accumulation, they would lower the risk involved, and be very happy to reap the tax advantages provided by the mortgage interest.

 

Ron Brown

 

First Mortgage Company of Washington

Jul 13, 2008 07:15 AM
Jason Crouch
Austin Texas Homes, LLC - Austin, TX
Broker - Austin Texas Real Estate (512-796-7653)

Jeff - As usual, you have done a masterful job of summing up some of the hidden pitfalls within the mortgage industry.  I have had clients tell me things like, "This company doesn't have any fees at all, while your guy is charging $XX".  I then have to patiently point out that the interest rate is a good deal higher. 

Jul 14, 2008 04:25 AM
Margaret Mitchell
Coldwell Banker Yorke Realty - York, ME
Seacoast Maine & NH Real Estate

I LOVED THIS POST.  As a new realtor, I have been presented with this loan program.  Intuitively, it felt wrong.  The fee set me back on my heels.  I hadn't yet picked it apart because the marketing presentation is very, very detailed.  You just did this for me and saved me a lot of time. 

The idea of paying a fee for the privelege of making two payments a month to pay the mortgage down faster is hilarious.  Just do it.  (I have used this approach to pay down a mortage on a 2nd home.)  No fee needed.

But you post really clarified things for me.  And there was no fee involved!   Thanks.

Jul 14, 2008 11:24 PM
Anonymous
Robert Smith

Great job on this post.  In my mind, it is ludicrous to pay $3,500 for this.  Other products make you refinance to a variable rate, which could be even worse.

However, there are low cost, reputable mortgage acceleration plans out there.  It's true that you can certainly pay down the mortgage yourself-although if its properly implemented, mortgage acceleration DOES pay it down a bit quicker.  MA is only for a narrow sect of clients though.  They must have great credit, ample equity, and a proven savings pattern.

Many people tout this as a program where you "Dont have to change your spending habits".  For the average American that lives paycheck to paycheck, nothing could be farther from the truth.  For these people, they WOULD have to change their lifestyle, and change it drastically!

Bi Weekly payment programs?  Dont waste your time.  Simply take your Principal and Interest payment, divide it by 12 and add that much to your mortgage each month (better yet, have it automatically deducted) you will accomplish virtually (if not exactly) the same thing.

Jul 15, 2008 01:18 AM
#26
April Hayden-Munson
Brookfield, WI
Brookfield Wisconsin Real Estate

Nice post Jeff, When will people learn that there is no "magic" pill? 

Jul 15, 2008 07:59 AM
Michael J. Gallo
Florida Luxury Realty - New Port Richey, FL
Florida Luxury Realty - Gulf Home Sales Team

If it sounds too good tobe true.....It usually is.  Good Blog Jeff

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Oct 24, 2014 11:46 PM
#29