Interest Cancellation Program For Your Mortgage

wackman

One of my mortgage brokers has gotten my attention with a program she's selling that is supposed to cancel out interest on your mortgage by putting a HELOC based second mortgage on the property, then using the HELOC like your checking account. It's actually somewhat complicated and it took me some time to get my head around it. It's kinda like making that one extra payment a year and paying more principle in that one payment than the whole rest of the year.

According to the projections, on this piece of property it should accelerate my payoff by twenty years and save me $350k in interest.

Well this program is $3500. It sounds like it'll save me more than that in the first 6 months in interest on my house but I can't help but wonder if I could do this without buying the program.

My broker says it's complicated with all sorts of math algorithms and stuff and that I could screw it up so easy to the point where I don't save nearly as much as if the program did it for me. The thing is my broker is trying to survive right now and of course she isn't going to tell me I could do it without the program, because then she wouldn't get the sale.

I need an unbiased, knowledgeable opinion.

I looked it up in some financial forums and there seems to be no concensus. Some people say it's a scam, some say it works great, some say you can do it without the program.

I think the idea is sound. It makes sense to me how it works. I just don't know if I need to buy the program.

My other thought is does anyone know how to make this work with more than one property at a time?

Anyone know about or have experience with these?

Wack

TimelessQuality

You can do it without the program...put that 3500 on the principle now, and make the extra 1 payment per year (towards principle)

Here's a link describing something like Wack described, called UFF. This site has some pretty cool calculators that will let you figure out how you can do it on your own..

http://www.mtgprofessor.com/A%20-%20...ff_is_back.htm

Ed the Roofer

What is the name of the program or the forums so we could see what others had to say?

I have a site that promises to get rid of all of your credit card debt, and be clear on your FICO in one years time with a little action required by you and your attorney.

If it walks like a duck and quacks like a duck.....it usually is.

Ed

wackman

It's called the money merge account and the company is ufirst.

wackman

This program claims to do it without spending your money any differently than you do now and not making any extra payments. Not one extra dollar spent more than your normal payment.

The truth is it does actually make sense. It's complicated and difficult to explain over the forum like this but the theory makes sense to me.

If you'd like me to try to explain how it works let me know and I'll take the time to explain.

Ed the Roofer

Here you go.

Ed

From Wikipedia:

Sales & Pricing
This software program is sold for $3,500 through a Multi-level marketing MLM structure by independent contractors for United First Financial.[2]

Analysis of the upfront cost of the software vs. the interest savings shows that greater total savings can be achieved by borrowers instead applying $3,500 as a one time principal pre-payment, rather than spending money to purchase the software. [4]
The Higher the 1st mortgage interest rate the greater the disadvantage to paying upfront for the software access, due to the higher opportunity cost when compounded over time.
Further the net offset savings, if any, likely will not cover the initial $3,500 upfront cash cost of the software. This is in large part due to the compounded loss on the upfront $3,500 investment over time....

[edit] Origins & Controversies

Similar mortgage acceleration plans have existed in Australia and the United Kingdom for several years before this particular American version was introduced. Some of the Australian promoters of these types of 'mortgage accelerator' programs have been prosecuted, injuncted from conducting business, and ordered to return client's money as a result of unlawful conduct, principally making misleading and deceptive claims.[4,5]
There are numerous companies in Australia that offer various mortgage acceleration programs, however some of these Australian companies have unethically marketed by using "loan calculators" to show a quicker payoff time using the line of credit mortgage.
"The Australian Securities and Investment Commission (ASIC) has acted to close down loan calculators on more than 100 websites of Australian financial institutions, including banks, credit unions, other lenders and finance brokers. The calculators suggested that using a line of credit will result in the consumer paying off their home loan more quickly." [6,7]

United first Financial does not directly compare the curtailment results of their MMA prepayment schema to the results that can be achieved at by instead simply prepaying and curtailing the first mortgage directly without HELOC balance transferring or the 'money merge account' software.
This has caused controversy, as MMA salesmen suggests and claim the software and MMA scheme saves homeowners money, and will result in the consumer paying less interest and off their home loan more quickly. However they provide no numerical comparison or verification.
Subsequent independent comparisons and analysis have shown that the MMA prepayment schema does not save homeowners money and does not result in faster curtailment or paying off the loan more quickly, as compared to other free and low cost, common and obvious alternatives. [6,10,11]

[edit] Other Options

Other, more advanced, personal financial management, budgeting, and accounting software is available for purchase at significantly lower costs from major retailers. Once purchased these products become the permanent property of the owner, rather than only having online access.

Products such as Quicken, Microsoft Money, Peachtree Software, GNU Cash and You Need a Budget (YNAB) are designed to keep track of individual account information, such as checking, savings or money-market accounts. These programs can categorize past expenses and display monthly reports that are useful for budgeting future months. These programs can also extrapolate spending into future months to aide in budget management.

An alternative web-based mortgage pre-payment calculator system offered by Speed Equity offers the same functionality, while costing only a fraction of the price.

Spreadsheet software, like Microsoft Excel or OpenOffice.org Calc, helps to arrange budgets according to need and performs calculations easily with rudimentary formulas. For example, budget spreadsheets are used to keep track of income and expenses. Spreadsheets are excellent for complex budgets and planning.

A simple budget can be written on a piece of a paper with a pencil, and optionally, a calculator. Such budgets can be organized in three-ring binders or a file cabinet. Simpler still are the pre-formatted household budgeting or bookkeeping forms that creates a budget by filling in the blanks.



[edit] See also

• Personal budget
• Financial literacy
• Investment
• Mortgage loan
• Offset mortgage
• Accounting software
• Comparison of accounting software

[edit] External links

• [1 US Trademark Office] USPTO Serial # 78785151
• [2 www.u1stfinancial.com] Promotes and sells the Money Merge Account
• [3 www.brokerbanker.com] Paid editorial endorsement in Broker Banker Magazine
• [4 www.consumeraction.org.au/] Carolyn Bond, CEO at the Consumer Action Law Center in Melbourne, Australia.
• [5 www.asic.gov.au] The Australian Securities and Investment Commission (ASIC)
• [6] Analysis and Opinion by Jack M. Guttentag, Professor of Finance Emeritus and former Jacob Safra Professor of International Banking at the Wharton School of the University of Pennsylvania
• [7] Carolyn Bond, CEO at the Consumer Action Law Center in Melbourne, Australia. A non-profit, funded by the Legal Aid Commission and the Government Consumers Affairs Office (Consumer Affairs Victoria)'
• [8]Federal Direct Consolidation Loans Information Center of the U.S. Government]
• [9]Federal Trade Commission - Debt Consolidation]
• [10] Independant analysis at integramortgages.com/financialvoodoo by Integra Mortgage and Investment, Inc.]
• [11] Independant analysis at floridamortgageplanner.typepad.com by Solid Rock Mortgage ]

Retrieved from "http://en.wikipedia.org/wiki/Money_Merge_Account"

Ed the Roofer

Here is the optional plan referred to in the article for an online program called "Speed Equity" which only costs $ 199.00 for the year.

https://speedequity.com/coming/

Ed

wackman

I had a feeling....thanks.

Ed the Roofer

It is the natural human fraility, to always attempt to believe in the one potential offer that seems too good to be true, but just maybe, it really wotks.

I read through a few other things about it and it would not be as beneficial on a 15 year mortgage. Why? Because you are already paying the majority of your payments to the principal versus the 30 year, if I remember my old calculations correctly, the first 7 years are practically all interest.

Ed

wackman

Ed, you are the man.

Celtic

Ya know...... Quicken can show you how much you save on interest by pre-paying principal...cost is minimal (under $50ish) and it'll even balance your checkbook!

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Ed the Roofer

bankrate.com has the calculator to figure out how changing your payments will affect you mortgage.

Example:
Exactly 3 years ago, I bought my current home. I got a 15 year 5.25 % rate. I pay $ 100.00 extra every monthly payment.

It will be 100 % paid in full at 12 years 10 months, if I remember correctly.

After only the first 2 1/2 years, I was already in the black on the payments, where more is going to principal than interest with each payment and it increases by $ 4.00 more principal per month.

Ed

Putty Truck

If it wasn't for interest, I wouldn't have a payment at all.

K2

Here is something that was explained to me and I believe it to be true but I never did the math on it.

We all know that the begining payments on a say 15 year mortgage is mostly interest and little principle. At the end of the 15 years it is more principle than interest.

So example; $1000/mo mortgage, 15year. 1st payment = $950 to interest and $50 to principle. Last payment is $50 to interest and $950 to Principal.... Ok here is where the double pay comes in but you don't double pay the whole payment you double pay the princilpal. So on payment #1 you send in $1050.00. $950 to interest, $50 to principal , $50 for you double pay... OK here is the payoff. The extra $50 you sent in on payment #1 knocks off 1 full $1000.00 payment at the end of the 15 years, payment #180...

So using this system you double pay the very affordable principle in the beginning/early years, and knock off the end payments. As the mortgage matures of course the principal payment increases and a double pay on the principal is alot higher so you might chose to not double pay.

This system should be set up in all mortgages and can save x thousands of $ with no management fee.

But correct me if I'm wrong.

But if you pay a broker to do the same thing for you are more likely to make the double pay. I've known about double pay for many years and have never made one.

wackman

I'm kinda conflicted about the whole thing. I won't ever be the guy who has his house paid off until I'm either old or wealthy because I can't see myself letting the equity in my homes just sit there and do nothing. I will always be taking my equity and reinvesting it into more homes or something that will make me more money than the interest on the home costs me. The house goes up in value the same regardless of how much you owe on it.

It almost seems to me that I should focus on getting the lowest interest rate I can and setting up low interest lines of credit on them. Then I should use that equity forever to make more money.

What good is paying off the houses faster if I'm just going to dip in to use the money thereby giving myself a bigger payment?

Susan Betz

This is very sensible. You're investing the money, making it work for you.

I looked closely at the ufirst program a few months ago. It's very expensive up front, and that's my main objection. The principle of the program works. Good financial analysts can actually advise on making this type of plan happen without the ufirst program, the devil is in the application of the details. That's the advantage of the program, it tells you when and how much money to put into your plan, but if you ever lose your discipline and deviate from the program, you've thrown your up-front money in the toilet. While the MLM aspect of the program may seem a little icky, it's a good way to get motivated salespeople. I really don't have a problem with that; Avon works, Mary Kay works, etc.

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Fences of Distinction, Ocala, FL
http://www.fencesofdistinction.com

joasis

It doesn't matter what you do with the money, as long as the repayment schedule is working in your favor. I currently do not make any mortgage payments, but that changes when I cash out a paid off home in January....I will sell the property when our new home is finished, but just in case, I will hit the back side of the payment with extra dollars....

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Sstructures

I've thought about changing my payment structure on my mortgage.
If you change to bi weekly payments, instead of monthly, you end up basically making one month's extra payment in a years time, 26 bi weekly payments or 12 monthly,
although 1-2 months per year you get hit with three payments due...

Celtic

If you send 1 payment every 4 weeks, you get 13 payments out of the year also.

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K2

So what does 13 payments a year buy you on a 15 year?? I guessing 2 or three years off?? Pretty nice.