Money Merger Account (MMA) A Scam?

[Lianad]

I did a search on the forums but found nothing in regards to this. I just recently heard about Money Merger Accounts (MMA) from a friend. Basically it claims to be able to let you pay off your mortgage in 1/3 the time.

Of course it sounds entirely good to be true to me, so red flags went up in my head. I've googled, and tried to do some research, but everything I found is actually promoting it and saying it isn't a scam. There are numerous YouTube videos as well if you search for Money Merger Account. Apparently it started in Australia and has now just moved to the US. United First Financial is the main company behind it apparently, and Fifth 3rd Bank and other well known banks are apparently jumping on board and will be promoting it as well.

The basic way they say it works is thus, you first pay $3500 for this software to keep track of everything. You then need to set up Home Equity Line of credit and have your paychecks deposited directly into this (instead of your checking account). You then pay all of your bills from this Equity Account, and then pay principle on your mortgage through it as well.

The system claims anyone can do it, with your current income, as long as you make more money then you are paying out each month. I just can not possibly fathom how this can be for real and actually work, unless of course you have a complete lifestyle change and every penny you'd normally spend on food/gas/entertainment etc is put towards your principle. I just don't understand how without changing your lifestyle or income, you can find all this extra money to be putting towards principle each month.

And in all honesty, why do you need $3500 software to calculate stuff? Wouldn't it be exactly the same to just reorganize your budget and allow for some extra cash to put towards principle each month? I'm a novice with this stuff, but it just doesn't make sense to me.

Has anyone heard of this? Is it a scam? How exactly does it work if your income stays the same? Any insight would be appreciated.

[balrog666]

Sure you can pay off your mortgage faster, especially if you borrow from a Home-Equity-Line-Of-Credit to do so (at a substantially higher interest rate).
I'm not sure that's a very good idea though.

And, if you want to pay off your mortgage early, why not just finance for 7 or 10 years.
You get a better interest rate for doing so anyway.

And buy a $3500 pile of useless software? BWAAAAAAAAAAHAHAHA!
I wish you had posted a link - my guess is it's just a standard communications program.
And I'd love to see what claims they make to justify that cost.

Frankly, that $3500 smells an awful lot like a loan origination fee and whole thing smells like another desperate mortgage-industry trap for the gullible.

[Lianad]

Here is a link that shows the software example, there are 2 parts to this youtube video.

Part 1: Goes over the overall MMA plan with small part related of software:
http://www.youtube.com/watch?v=XjQ4_v6xbqQ (http://www.youtube.com/watch?v=XjQ4_v6xbqQ)

Part 2: Pretty much all of it on the software: http://www.youtube.com/watch?v=qabuGyT9atU

[JoeEllison]

I can't make myself sit through a sales pitch...

Why do you need to spend $3500 for "software" to tell you to put a little extra towards your principle each month? They have mortgage calculators online, for free, that tell you exactly how much earlier you'll pay off your loan based on how much extra you pay each month.

BTW... a one time $3500 payment knocks 18 months off of my 30 year fixed-rate mortgage. Taking $400 of my monthly disposable income, plus $1000 yearly from my income tax refund, knocks a full 16 years off of my home loan. So, why should I pay someone else for that, when I can do it myself without someone skimming cash off of the top?

[balrog666]

Here is a link that shows the software example, there are 2 parts to this youtube video.

Part 1: Goes over the overall MMA plan with small part related of software:
http://www.youtube.com/watch?v=XjQ4_v6xbqQ (http://www.youtube.com/watch?v=XjQ4_v6xbqQ)

Part 2: Pretty much all of it on the software: http://www.youtube.com/watch?v=qabuGyT9atU



As expected, it's utter crap! If you have extra disposable income, it gets paid on the mortgage. When you need extra money, you get it by borrowing on the HELOC (at higher interest rates). Not a good idea.

If you like the idea of paying off your mortgage early, just do it by adding an extra $100 per month to the payment. Or $500.

It's true, as Joe said above, that a single extra payment of say, $1000, at the beginning of your mortgage can knock six months of payments (or more) off the end. But that doesn't mean it's a good idea for you (do you have the money to blow, does shortening your mortgage please you, is your mortgage interest rate rather high?).

There are plenty of good mortgage calculators online or spreadsheets to download, just input your current mortgage parameters and see what happens to the number of payments when you add $100/month to the payment or make a single $1000 payment up front.

[bpesta22]

Paying off a mortgage isn't the best idea if your interest rate is relatively low. You should be using extra cash for 401k or other investments.

The return on paying it off is just the interest rate minus the tax deduction. The return is something you could probably beat even by conservative, old man stuff like bonds.

[GreNME]

If you like the idea of paying off your mortgage early, just do it by adding an extra $100 per month to the payment. Or $500.

Or even $25 or $50. This is a good strategy for people who don't make much extra disposable income who aren't involving themselves in the (investing) market right away but still want to be putting some money into something worthwhile to them later.

That said, Lianad, it might not be in your best interests all around to pay things off too early. Is this going to be the home you plan to retire in? Do you think you might have some work done on the house or property in the future where you might be able to roll the loan for the work and the mortgage together? Having a mortgage isn't always a credit liability, despite it being a regularly-present cost while paying it off.

If you feel it's your last house in a while and you already have money being put into personal retirement measures, there are plenty of ways for you to pay off the mortgage early without spending an extra $3500 and getting sunk into high interest accounts.

[The Atheist]

I did a search on the forums but found nothing in regards to this. I just recently heard about Money Merger Accounts (MMA) from a friend. Basically it claims to be able to let you pay off your mortgage in 1/3 the time.

It does work and it works simply because you negate a lot of compounding interest by doing it. The $3500 part is a scam as the rules of what you need to do is a 10-minute job to learn and five to implement.

As BPesta noted, it may not actually be the smartest thing to do. The simplest way of looking at it is to figure whether your house price is increasing with inflation faster than your interest rate; i.e. if your interest rate is 4% and you expect your house's value to increase by 6% a year, then it's actually in your interest to pay it off as slowly as possible.

The looking at other investment options instead is another good suggestion.

When doing anything with debt, pay off the highest interest rate first.

[Jaggy Bunnet]

The simplest way of looking at it is to figure whether your house price is increasing with inflation faster than your interest rate; i.e. if your interest rate is 4% and you expect your house's value to increase by 6% a year, then it's actually in your interest to pay it off as slowly as possible.

Can you explain this? I can't see why it matters what is happening to your house price.

Surely if you can pay of higher rate debt or invest the cash for a better net return then you do that. Can't see that house price impacts in any way.

In the UK it is becoming quite common to have offset accounts where interest is charged on the net balance of your mortgage and a related current account. However this may be due to the UK tax system which gives no relief for mortgage interest but taxes interest on the current account.

[Geek Goddess]

On my last three houses, I did a simple calculation using Excel and standard interest formulas, and figured out the amortization of my loan. Once, because I thought I was going to live in the house forever, I was interested in paying it off early. At the time, for every extra principal payment of about $55, I could knock off one month of the loan and save about $750 in interest.

There are more than one school of thought on paying off mortgages. Some financial counselors feel that the security of having your home paid off is worth the offset of not investing that additional money. Some counselors recommended financing your house with a thirty-year-loan but paying extra principal aimed at a 10 or 15 year payout. The reasoning is that, if you had an emergency like a loss of job or large medical bill, you could always go back to paying the 30-year-loan mortgage payments, whereas if you financed for a shorter period of time you might have trouble making your payment.

I have lived in two homes where the value of the home dropped dramatically after I bought it, due to devastating economic conditions that occurred in the local area. On one, the value of the house was about 25% less than what I owed on the loan. There was no way I could have come up with the cash to pay the difference, but I fortunately had a non-qualifying assumable loan. I found a buyer who could make the payments but did not have a lot of cash for a downpayment. On my second house, I assumed a loan and paid the previous owner equity amounting to about a 25% down payment. Within the five years that I lived there, the city's housing values had dropped such that when I sold the house, on a qualifying assumption, to move to another city for my job, I walked away with about $2,000. The person who bought the house benefited from the fact that I had knocked about three years off the loan by paying the aforementioned $50 per month extra.

My third house netted me a profit of 15% after only 6 months in the house. My fourth house made me a bit of money, but I was helped immensely by the fact that my employer paid all of the closing costs and realtor's fees, so all of the equity was available for a down payment on my fifth house. Which is now for sale...

I am now living in a city which will undoubtedly be my home for the rest of my life, as it is pretty much the center of the industry I work in. I am struggling with whether to buy a house, or rent something. I hate moving.

[JoeEllison]

One of the things I'm fixed on is the idea that I am not going to move, ever again. So, the sooner I can pay off the house, the sooner I have the extra thousands of dollars every year in order to further invest for my future. Plus, my house can pretty much only go up in value, so the more equity I can get into it, the better.

Plus, it means my wife and I can retire sooner... always a good thing.

[The Atheist]

Can you explain this? I can't see why it matters what is happening to your house price.

If you take the differential on your interest rate costs and house value increases, the equity increases faster than interest accrues, as long as property is inflating and not stagnant.

Obviously, it's a bit of a gamble, because nobody knows what house prices will do at any time, but it's better than buying silver futures.

[Jaggy Bunnet]

If you take the differential on your interest rate costs and house value increases, the equity increases faster than interest accrues, as long as property is inflating and not stagnant.

Obviously, it's a bit of a gamble, because nobody knows what house prices will do at any time, but it's better than buying silver futures.

But the movement of the value of your house is unaffected by the amount of your mortgage.

Say I have a mortgage of £100k and £20k of cash. Interest rate is 4% on the mortgage, 3% on a deposit account (ignoring other investment options to keep things simple).

Best thing to do is pay of part of the mortgage, thereby saving £800 pa in interest cost (20k @ 4%), at end of year mortgage £80k, cash (interest saved) £800, net debt of £79,200. If I put the cash in a deposit account, I still owe £100k and have £20,600 in the deposit account, so am net (£79,400 in debt) worse off. Whether house prices have gone up or down will affect me in the same way whatever I do.

Am I missing something?

[fagin]

Surely it just depends on the after tax return. Assuming no capital gains tax, if the interest rate payable on the mortgage exceeds the likely after tax return on investment, it makes more sense to put the surplus against the mortgage.
For most people this will be the case - it is a fairly secure, low risk investment, especially as you live in it as well.

[a_unique_person]

Yeah, it did start in Australia, and there was no need for any 3500 dollar software package. Like any loan or account, the bank runs it all for you using their software.

The basic principle is that any savings go into paying off your loan, till you need them. Of course, you actually need to be able to save some money in the first place, if you get your payday amount, and it's mostly blown in the first week or two, :blush:, it won't make much difference to the loan. If you can save a bit of it, then it will make a significant difference, and any time you want those savings, you can draw them out instantly.

[Lothian]

Sounds like what in the uk is called an offset mortgage.

With offset mortgages. You can vary your payments. If you have builf up a credit, when the interest for a month is calculated it reduces the amount on which interest is charged by the amount of credit.

It makes a lot of sense to go for this if you can spare money and the interest rate you pay is greater than that you receive.

It is not a scam however, as with all mortgages the most important factor is not the conditions but the interest rate.

If you want an offset mortgage speak to the lender they will tell you how and when you can transfer funds in. Some lenders who operate current accounts will keep your current account at a set level automatically transferring balances to and from the mortgage account.

You can also do this yourself. I doubt a £3500 program is any better at this than a simple spreadsheet. As others have said the progam is the scam.

[shuize]

When we owned property in the U.S., the biggest motivator for us to pay down my mortgage as soon as possible came from reviewing the closing documents which outlined how much interest we'd be paying over the life of the 30 year loan if we didn't.

After funding the Roth-IRA, putting any extra money toward knocking down the principal seemed like a pretty obvious financial move to me. Although, I have heard from others, including my father, who insist the tax benefit makes it worthwhile to keep the mortgage. Personally, I was never convinced. Sure, if you live in it, you get to write off the interest. But, as I recall, mortgage interest is an "above the line" deduction, so it's not a 1 for 1 credit against your taxes. At best, you're only saving a percentage of what you're paying in interest and, as fagin noted above, you still have to beat your interest rate (plus taxes) with the alternative investment. If anyone can explain how this a good deal, I'm all ears.

[The Central Scrutinizer]

When we owned property in the U.S., the biggest motivator for us to pay down my mortgage as soon as possible came from reviewing the documents which outlined how much interest we'd be paying over the life of the 30 year loan if we didn't.

After funding the IRA, putting any extra money toward knocking down the principal seemed like a pretty easy financial move to me. Although, I have heard from others, including my father, who insist the tax benefit makes it worthwhile to keep the mortgage. Personally, I was never convinced. Sure, you get to write off the interest. But it's not a 1 for 1 credit against your taxes. At best, you're only saving about 1/3 of what you're paying in interest and, as fagin noted above, you still have to beat your interest rate (plus taxes) with the alternative investment. If anyone can explain how this a good deal, I'm all ears.

If you have a mortgage at (let's say) 6%, and the DJIA and S&P500 historically return 10% annually, why would you ever want to use extra cash to pay down a mortgage? Put it in an index fund, unless you think you can do better.

I've never been able to fathom why anyone would want to pay off a mortgage. :confused:

[Jaggy Bunnet]

When we owned property in the U.S., the biggest motivator for us to pay down my mortgage as soon as possible came from reviewing the documents which outlined how much interest we'd be paying over the life of the 30 year loan if we didn't.

After funding the IRA, putting any extra money toward knocking down the principal seemed like a pretty easy financial move to me. Although, I have heard from others, including my father, who insist the tax benefit makes it worthwhile to keep the mortgage. Personally, I was never convinced. Sure, you get to write off the interest. But it's not a 1 for 1 credit against your taxes. At best, you're only saving about 1/3 of what you're paying in interest and, as fagin noted above, you still have to beat your interest rate (plus taxes) with the alternative investment. If anyone can explain how this a good deal, I'm all ears.

I guess it depends as the tax system could result in this being logical.

For example, in the UK every individual has an annual exemption from capital gains tax meaning that for the first few thousand pounds of gains, no tax is paid. There are also tax favoured saving schemes under which limited amounts of money can be deposited with no tax arising on the interest. Back in the good old days, we also used to get interest relief on mortages.

Under those conditions, it may make sense to invest the cash in a manner that will generate a tax free return rather than reduce your mortgage. For example, consider the example I used earlier:

Say I have a mortgage of £100k and £20k of cash. Interest rate is 4% on the mortgage, 3% on a deposit account (ignoring other investment options to keep things simple).

Now if my mortgage interest is tax deductible at a rate of 40%, then the net interest rate is only 2.4%. If the deposit interest is tax free, then it would make sense for me to invest the cash rather than pay off the mortgage.

[Lothian]

If you have a mortgage at (let's say) 6%, and the DJIA and S&P500 historically return 10% annually, why would you ever want to use extra cash to pay down a mortgage? Put it in an index fund, unless you think you can do better.

I've never been able to fathom why anyone would want to pay off a mortgage. :confused:Well lets say you bought in 2000 you could have beaten the Dow Jones by sticking it under your bed and buying a dog to guard it.

Chart (http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=2000)

[The Central Scrutinizer]

Well lets say you bought in 2000 you could have beaten the Dow Jones by sticking it under your bed and buying a dog to guard it.

Chart (http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=2000)

Yes, but that's what investments do. Sometimes they go down.

[Lothian]

Yes, but that's what investments do. Sometimes they go down.and that is why some people choose to pay off a mortgage rather than run the risk of ending up with less than they have invested.

[JoeEllison]

If you have a mortgage at (let's say) 6%, and the DJIA and S&P500 historically return 10% annually, why would you ever want to use extra cash to pay down a mortgage? Put it in an index fund, unless you think you can do better.

I've never been able to fathom why anyone would want to pay off a mortgage. :confused:

You can put $20 a month in an index fund?

[shuize]

If you have a mortgage at (let's say) 6%, and the DJIA and S&P500 historically return 10% annually, why would you ever want to use extra cash to pay down a mortgage? Put it in an index fund, unless you think you can do better.

I've never been able to fathom why anyone would want to pay off a mortgage. :confused:


O.K. I understand if the spread is big enough, it makes sense.

But there's no guarantee on getting 10% out of the index fund. If my mortgage is 7%, any principal payment is a guaranteed 7% return. But I suppose I'm a fairly conservative investor.

[The Central Scrutinizer]

and that is why some people choose to pay off a mortgage rather than run the risk of ending up with less than they have invested.

I suppose. And I guess that's why a lot of people never build wealth. But to each their own.

[The Central Scrutinizer]

O.K. I understand if the spread is big enough, it makes sense.

But there's no guarantee on getting 10% out of the index fund. If my mortgage is 7%, any principal payment is a guaranteed 7% return. But I suppose I'm a fairly conservative investor.

Fair enough.

Although, I would say that 10% (if that is the number. I know it is somewhere around there) annual return, averaged over the past 75 years, is a pretty good "guarantee", at least in my book.***

***Not that I'm necesarily arguing for index funds. A lot of people do better. Index funds are just the no-brainer default position.

[JoeEllison]

I suppose. And I guess that's why a lot of people never build wealth. But to each their own.

How is owning your own home not "building wealth"?

[shuize]

... Back in the good old days, we also used to get interest relief on mortages ...


No deductions on mortgage interest in the U.K.? That sucks.

Actually, though, I think it's limited in time in Japan. Ten years on new houses here, I believe.

Also, if I recall correctly, the U.S. allows taxpayers to exclude from taxes all the gain on the sale of real estate if they occupied the property for a specified period of time (2 out of 5 years?) and reinvested the profits in another home.

During the past housing boom, people were "fixing and flipping" -- trading up again and again tax free. Of course, they've likely given back some of that gain in the past year. But still, many fortunes were made.

[The Central Scrutinizer]

How is owning your own home not "building wealth"?

It is. Putting cash in an interest bearing checking account paying 1% is also building wealth.

[Jaggy Bunnet]

No deductions on mortgage interest in the U.K.? That sucks.

Yes and no. Very few deductions are available to employees in the UK (different rules for the self employed) - basically limited to pension contributions. Makes things simpler and avoids distortions: why should the government promote home ownership (by giving mortgage relief) over renting (no relief on rental costs?).

Also, if I recall correctly, the U.S. allows taxpayers to exclude from taxes all the gain on the sale of real estate if they occupied the property for a specified period of time (2 out of 5 years?) and reinvested the profits in another home.

All gains on principle private residence are exempted in the UK. Relief is also generous for properties that you have lived in but now rent out.

During the past housing boom, people were "fixing and flipping" -- trading up again and again tax free. Of course, they've likely given back some of that gain in the past year. But still, many fortunes were made.

UK house prices have risen so much (and there have been sufficient pension scandals) that many people now appear to be relying on the value of their home to fund their pension. Can't see what could possibly go wrong with such an idea.

[Lothian]

Fair enough.

Although, I would say that 10% (if that is the number. I know it is somewhere around there) annual return, averaged over the past 75 years, is a pretty good "guarantee", at least in my book.***

***Not that I'm necesarily arguing for index funds. A lot of people do better. Index funds are just the no-brainer default position.
All mortgages are the same. Over a period of time you need to pay the lender the money he has lent you and the interest on it.

In the UK the most popular mortgages were endowment or repayment.

The former split the payment in two. The first part paid the interest the second was invested, with the aim of earning large amounts of money that would at the end of the term pay off the capital lent and provide a nice bonus for the borrower.

In the second boring option the payment was also split in two but part paid the interest the other part reduced the capital.

Endowment mortgages lost popularity in the 80s when a number of borrowers found the nest egg generated was not large enough to pay off the capital amount. Now most mortgages in the UK are repayment.

If you are right and any fool can beat the interest rate by playing stocks and shares they should go for a third option available here - interest only. In that you only pay the interest and it is up to you to pay the capital at the end of the term.

Despite their availability they are not popular (other than among people who can only afford an interest only mortgage). These investors often do not have the funds to pay off the capital amount, but hope for a change in their circumstance over the life of the mortgage.

I think your wealth creation point is misleading. With the same interest rate the amount paid on a mortgage will be the same for all the options above. Wealth is created by earnings in excess of outgoings (including mortgages). Some people can create wealth by playing the stock market others lose money at it. Most wealth however comes not from what you do with your money but how much you earn.
There are many wealthy people who have never invested in stocks and shares and many paupers who have.

[JoeEllison]

It is. Putting cash in an interest bearing checking account paying 1% is also building wealth.Right... and, depending on your savings, your age, and your overall financial position, paying off your mortgage early might be the best investment option open to you. You know, because the really good investments often require a pretty substantial minimum investment that may not be an immediate option. If you are buying a home when you're 50 years old, paying it off early probably isn't as wise of an investment as other options. If you're 25, building equity will probably seem like a better strategy.

[Geek Goddess]

How is owning your own home not "building wealth"?

Per my previous post - I bought a house at appraised market value, and within 5 years it was worth 30% less than I owed on it, because the entire region's economic base had tanked. I had put a down payment, and had done improvements, and paid 5 years off the principal.

Your house is worth what the market would pay for it, not what you think it's worth or how much you put into it. My current house had appreciated about 55% since I bought it 10 years ago. Since May, when the mortgage loan fiasco started, it is now appraised for about 30% over what I paid for it. I've lost over $50,000 of my net worth just due to that. If I had bought the house 3-4 years ago, and paid 10% down, I'd be in the hole as far as that right now

[The Don]

Fair enough.

Although, I would say that 10% (if that is the number. I know it is somewhere around there) annual return, averaged over the past 75 years, is a pretty good "guarantee", at least in my book.***

***Not that I'm necesarily arguing for index funds. A lot of people do better. Index funds are just the no-brainer default position.

This was the principe of the endowment mortgage. You take out an interest only mortgage and in parallel an investment vehicle to pay off the principal. The intention was that you could pay off the mortgage in 25 years and perhaps have a little extra as a nest egg. THe calculations were based on 7-10% returns. THere was a big brouhaha recently about misselling, the drop in the stock market around 2000 meant that endowment schemes cut their rates and people were left with shortfalls, or at least projected shortfalls. These schemes tend not to be offered any more.

I expect it's because people forget how good they were and think that negative returns are typical rather than positive returns