Real Estate
Don't Fall for This Mortgage Pitch
Prepay your home loan yourself and skip the $3,500 software fee.
By Pat Mertz Esswein, Associate Editor
From Kiplinger's Personal Finance magazine, May 2008
Advertisement
You may have received e-mails touting a system that promises to help you pay off your mortgage early. This mortgage-acceleration package -- which includes a software program -- relies heavily on the use of a home-equity line of credit. The software analyzes your financial data to reveal when and how much extra you should prepay.
The Money Merge Account system, sold by United First Financial, costs $3,500. For the price, you may also receive a recruiting pitch. United First is a multilevel marketer that encourages salespeople to bring others aboard, passing the profit up the food chain.
With or without expensive software, the fact is that the more discretionary income you can commit to prepayment, the quicker the mortgage becomes history. We suggest you keep your $3,500 and do it yourself without having to fend off a pushy salesperson.
For example, divide your monthly payment by 12 and pay that much extra each month. Doing so would allow a homeowner with a $230,000 mortgage at 6% to cut about 5.5 years off a 30-year mortgage (see our How Advantageous are Extra Payments? calculator).
Is prepaying your mortgage even a good idea? That depends on whether you have better things to do with spare cash. You could create a reserve fund so that you don't have to borrow in an emergency or stash the money in a tax-deferred college- or retirement-savings account.
Salespeople challenge whether you'll follow through on your own -- as if spending $3,500 for software will ensure that you'll use it. Tell that to couch potatoes whose high-end exercise equipment gathers dust.
Reader Comments (54)
Posted by: Michael in Portland at 04/10/2008 08:40:15 AM
This is your argument for why not to pay? I suppose we should all do our own taxes? Change our own oil? Research and invest on our own? Set our own broken leg? Write our own prescriptions? Etc... My point is: there's a time and place for mortgage acceleration (i.e. actually making a traditional debt consolidation work by forcing a client to realize their poor spending habits, getting them to reinvest the savings in debt and see in real time how they are improving), and in my opinion... consultation and advice have to go right along with it. By the way, I do NOT work for United First Financial.
Posted by: DM at 04/11/2008 02:14:45 PM
Everyone has the right to their opinion. I know for my husband and I, if we were not introduced to the MMA 17 months ago, we would never be in the financial position we are today....the $3500 is by far the BEST investment we have ever spent in helping us reach our financial goals. We are only 1.5 years from being mortgage free and our wealth accumilation has tripled. With the equity we have in our home now because of the 'system' we are using, the MMA, we are our own banks for when ever an investment opportunity comes up. We even have more than we ever had available to us in case of emergencies. We sleep better at night, a lot less stress and we just know this is a great program for so many people. We were able to write off the $3500 on our taxes, another great benefit to us. We have the navigation tool to get us, as home owners, back on track and in a much better financial situation than we could, or would, ever do on our own. DM, Phoenx AZ
Posted by: Colorado Jim at 04/12/2008 12:29:48 PM
Time to separate the wheat from the shaft...I sat through the UFirst presentation 2 times. I can confidently say that I am perplexed as I was before. Their implied jewel is that the exact timing of payment and the exact amount makes all the difference. I would sure like someone in advanced finance to prove or (disprove) this idea one and for all...
Posted by: Craig at 04/15/2008 11:47:28 AM
Michael in Portland: Bad analogy. Even with the MMA, you have to log into a website and update your financial position. The MMA software just spits back the next prepayment to make. You can do this yourself by sending any extra money to your mortgage at the end of the month. Instead of logging into the MMA website *and* your bank, you only log into your bank, make a quick calc (e.g. $1700 balance - $1000 float = $700) and then send that money to your mortgage. Easier than the MMA, and it will pay down your mortgage faster than the MMA, especially once the $3500 fee is taken into account. And as the article states, all this is assuming that accelerating your mortgage payoff. is the correct choice. Even if it is, the money merge account is *not* the easiest, the optimal, nor the lowest risk solution.
Posted by: Bill Murrells In,SC at 04/15/2008 07:00:19 PM
Colorado Jim You're right. I first heard about this over a year ago from a good friend of mine who was a mortgage broker in NJ. He e-mailed me some info and I told him it was a bunch of smoke and mirrors but he signed up anyway. I think he's in denial...Save your money on the $3500 and use that to make a one time payment on your 20 or 30 year mortgage and save thousands...
Posted by: Steve at 04/16/2008 09:24:44 AM
Make prepayments yourself. Also, if you apply the $3500 saved to the example given above, you will automatically knock 14 months off of your mortgage!!!
Posted by: Jim at 04/16/2008 09:29:23 AM
This reminds me of packaging up water and selling it in a bottle. Great idea to make money on something that's already free...
Posted by: Ken Naugle at 04/16/2008 12:43:20 PM
It seems you did not consider the effect of an immediate $3500 payment to principal. Consider that a 30 year $200,000 loan at 6.5% has a monthly payment of $1,264 (initially $1083 interest and $181 principal). That alone cuts nearly 2 years off the mortgage. If you are 7 years into the mortgage (about $180,000 left), it still would cut off 15 mos. from the mortgage). Even a $375,000 mortgage can be cut early on by a year this way. Bottom line is if you have $3500 to burn, and no better place, just put the whole 9 yards on the mortgage. You'll probably be better off...
Posted by: R.L. at 04/16/2008 01:10:24 PM
DM: .... That $3500 would have been better served pre-paying your mortgage...
Posted by: DD in SoCal at 04/16/2008 02:11:19 PM
I am just now starting to read about these, and I don't have one (not sure I'd get one, either). But it seems that the overriding benefit to them is the posting of the payments. No matter how often you send money to your regular mortgage lender, they're only going to apply your payment(s) at the end of that month, so the interest will continue to accrue until then. With these Loan Accelerator programs, the principal is credited immediately, which has got to save a lot of money.
Posted by: Del at 04/16/2008 03:22:31 PM
Depending on your bank the money is posted to the account immediately. DD, you might want to go through a servicer who does this. Mine is Wachovia and I love it. No need to get an accelerator if you can be disciplined yourself.
Posted by: JH at 04/16/2008 03:28:50 PM
...This is the same method used by business' and banks to borrow and repay funds. The MMA software system...in fact does work to reduce the cost and time involved with paying back a mortgage loan by a fraction of the time....mostly by a third the time...it is a course in financial responsibility....It's not unlike a person who needs to lose weight being motivated by actually seeing the results....The bottom line is Americans are not financially savvy, to say the least...we teach our children how to bake cakes in home ed....but do not spend ample enough time to educate them on the economy or finances.
Posted by: Ron Wilson at 04/16/2008 03:49:54 PM
Finally, someone is making some sense! I personally know 2 families that are in huge financial trouble after trying the UFirst system...
Posted by: Mike B. at 04/16/2008 07:30:20 PM
1) With accelerator mortgages, you pay your loan off much faster than by just making extra payments each month. 2) Using a line of credit, you make extra mortgage payments...You don't make extra payments out of pocket. 3) "Is prepaying your mortgage even a good idea?" What kind of lunacy is that? Since when is saving thousands of dollars in interest a bad idea?! If you'd rather have the tax writeoff each year, you're a fool. There is a lot more to this concept than is represented here...
Posted by: Steve E. at 04/16/2008 08:03:10 PM
Why not just open a 1st lien line of credit? There is no software and the interest payment each month is based on your average daily balance, not the initial loan amount. And if the LOC has banking features such as unlimited check transactions, ATM cards, online bill-pay, and direct deposit it would pay your home off without the headache of logging on to the computer and entering all of your financial numbers...
Posted by: Craig at 04/17/2008 03:12:29 PM
...There is no magic to prepaying your mortgage. Re-read the article above...
Posted by: Mark G. at 04/17/2008 03:49:04 PM
I would not recommend getting a line of credit without software to guide you...You could get yourself in trouble with the monthly payment amount/balance if you don't know the optimum amount to send to the mortgage?
Posted by: Craig at 04/18/2008 12:43:41 AM
The optimum amount to send to the mortgage is simple - keep the balance of the HELOC as close to $0 as possible. The HELOC interest rate will be higher than the mortgage rate, and HELOC interest is calculated on the average daily balance, so the best way to perform the "HELOC shuffle" is to minimize the HELOC balance...
Posted by: Manuel at 04/18/2008 07:14:04 AM
...by using United First Financials program, homeowners are able to bring their entire net income to bear against their greatest debt –their home. Pat states “divide your monthly payment by 12 and pay that much extra each month. Doing so would allow a homeowner with a $230,000 mortgage at 6% to cut about 6.5 years off a 30-year mortgage” Using the Money Merge Account by United First Financial, we are on course to pay off our $175,000 loan in just 6.5 years—a savings of $132,000...These results are possible by leveraging our entire net income against our closed-end mortgage...
Posted by: Bill at 04/19/2008 07:27:29 AM
I'm an accountant. You need to sit down with your accountant or consult with one before getting involved with this or any mortgage acceleration programs...Your wasting your time...Talk to your accountant, not mortgage broker or realtor who seem to be the people they are targeting.
Posted by: Mike at 04/21/2008 06:33:48 PM
Ask an accountant? My friend is an agent and his clients accountant was telling her to just send an extra $1000 a month to her mortgage, she didn't even have an extra thousand dolars a month,she was negative every month????
Posted by: Mike at 04/21/2008 06:40:20 PM
How come no one is (criting) the other mortgage acceleration programs like CMG, and Sydney Financial????
Posted by: Mike at 04/21/2008 07:02:05 PM
Craig my heloc rate is 5.8%, my mortgage is 8.2% what are you saying???
Posted by: Dennis McPartlan at 04/22/2008 03:48:51 PM
I would like to take the opportunity to respond to Pat Mertz Esswein (“Ms. Mertz Esswein”), Associate Editor’s article on the Money Merge Account (“MMA”) offered by U First Financial The software program, Money Merge Account ("MMA") uses a short term debt instrument, (the HELOC ) to pay down the principle on your primary mortgage and thereby canceling tens of thousands of dollars in interest. Money to invest for travel, retirement, kids college etc. It enables mortgage holders to pay off their 30 year closed end loan (only money going in) by the use of a HELOC (an open ended or short term debt instrument) which is used as a checking account or your financial dashboard to pay off your mortgage in a half to a third of the time. In summary, the software, MMA, is really an interest cancellation tool. This is accomplished by not changing your cash flow at all. It is not for everyone. You must have good credit, at least 650 to ensure that you would qualify for the HELOC and you must have a positive cash flow. Warren Buffet has invested in multilevel marketing ventures. It will continue to be the wave of the future. It makes too much sense not to participate. The encouragement is to reverse the long established trend of having our financial institutions maintaining the wealth of the nation. There are those banks that are in agreement with the use of the system. Ms. Mertz Esswein’s statement “with or without the software” is misleading. The software allows you to pay off in half of the time while not committing any addition funds. Ms. Mertz Esswein’s example identifying paying $100 more per month (out of pocket) and only saving 5.5 years while costing much more than the $3,500, which when used, has proven to save at least 15 years? In fact, conservatively, she are asking the public to put up at least $100 more per month for 24 years $1,200 X 24 = $28,800 to save approximately $32,000 in interest. She also advises to commit more discretionary income. In today’s world, more and more people have less and less discretionary income. Life is more expensive without the software. You are not expected to follow through on your own. The software prompts you to conduct the transaction. It is virtually a homeowners’ financial dashboard.
Posted by: bill at 04/22/2008 04:16:11 PM
...o help those who might be financially strained, tell them to save the 3500 bucks and pay off those credit card bills or prepay the mortgage.
Posted by: Al Jacobs at 04/24/2008 11:32:59 AM
While tuned into one of my favorite radio financial talk shows the other day, a statement from the host caused me to wince. He informed a caller that a home with little or no mortgage is a bad idea, suggesting instead that “a substantial loan be obtained so that the money can be invested in good mutual funds.” He went on declare that “a personal residence with no mortgage earns nothing,” adding that “you have all that money locked up and you get nothing for it. It’s just sitting there, virtually unemployed.” Let me offer a second opinion. I don’t regard home equity as unproductive. My residence, delightfully free and clear of mortgage, has a potential monthly rental value of, perhaps $10,000. I’d need to generate a pile of pre-tax income if I had to rent my own house. Who says I’m getting nothing by having it paid-off?...It’s unwise to incur a loan on your home, which must be paid, to invest in something that may or may not produce the cash flow to make the payments...if your home borrowing simply goes into a fund, your fate in the hands of the gods... A final comment concerning mutual fund investment is warranted. From management’s perspective, its sole function is continually skimming a fee from the fund’s assets. Concerning performance, funds merely rise and fall with the general fortunes of the market. The probable rewards do not justify home mortgage risk. Posted by Al Jacobs author of Nobody’s Fool: A Skeptic’s Guide to Prosperity. www.onthemoneytrail.com.
Posted by: Craig at 04/25/2008 07:47:04 AM
Michael, if your heloc rate is 5.8%, and your mortgage is 8.2%, I am saying that you are bad at shopping for a mortgage.
Posted by: Luna Bosques at 04/27/2008 10:21:51 PM
I would love to know who is an actual client!? EZ to make as assumption based on $3500! Ever think about this? How many times u refinanced? How much did it cost you? Was it worth it?! The bottom line is the SOFTWARE does not affect your cash flow!...
Posted by: James Hughbanks - FL at 04/28/2008 12:12:25 PM
You...have only investigated the simple spreadsheet analysis which shows extra discretionary income going into the system and canceling out interest..The Money Merge Account Software is much more than a mortgage accelerator....is really a debt management tool. Other software like Quicken, Money, Quick Books, and others bring the past up to the present. The Money Merge Account software takes you from the present to the future...This places the planning power in the hands of the client.
Posted by: Jim at 04/28/2008 05:02:10 PM
I am a U1st Financial agent...I ran an analysis based upon the parameters...set forth, which were that 1/12th of the monthly payment be sent in as an additional principal. Accordingly, we come to find out that there are greater savings than anticipated using the software. There are additional savings from interest cancellation, leverage against a closed end mtg/open end mtg and finally the float. Ask yourself "how does the bank make so much money?"
Posted by: CJ at 04/29/2008 02:01:36 PM
The MMA is a product that, if most of the nation used it, we, as a nation, would not be in this bankruptcy mess we are in TODAY!
Posted by: Vladimir at 04/29/2008 03:10:36 PM
The software doesn't knock off 5.5 years off our mtg., in some cases it knocks off 22 years of a 30 yr. Mtg....In our case, we saved over $323,000 in future % payments and took off 16 year of our 28 yr.mtg. Was it worth $3500?. You be the judge...
Posted by: Darryl Schoenstadt at 04/29/2008 04:01:22 PM
Our software is routinely saving 15-20 years or more, with little to no change in lifestyle...
Posted by: BJ at 04/29/2008 04:39:54 PM
I'm a U-First client...Since your home mortgage is front end loaded with interest shaving 5.5 years is good but you will still pay double for your home with the interest you paid. The goal is to NOT pay double + what your home is worth. The money you save in interest will be far more valuable!
Posted by: Rich in Charlotte at 04/29/2008 10:15:03 PM
"Is prepaying your mortgage even a good idea?" Sure it is, especially if you leverage the banks money to do it. The MMA from UFirst is more than a mortage accelerator, it's a financial coach that is worth far more than the $3500 cost. Why wouldn't someone for the cost of $3500 build 40, 50, or 60 thousand in equity in their homes in just a couple of years?
Posted by: sd at 04/30/2008 10:14:05 AM
If you apply your own discretionary income to your mortgage and then need it down the road for an emergency, you're out of luck. Craig seems to think everyone should just apply their discretionary income to their mortgage. Craig doesn't understand the beauty of this program...Always use OPM ( other people's money ) whenever possible. I know, I know.... "it's my equity or my line of credit." Yes, it is secured by you but, not coming out of your pocket...
Posted by: Craig at 05/01/2008 02:54:42 PM
This has turned into a convention of UFF agents. There is no such thing as "front end loaded" mortgages, the HELOC shuffle will not save enough money to offset the interest on the $3500 fee, and Ms. Esswein provides good advice to avoid the Money Merge Account...
Posted by: calvin at 05/11/2008 11:05:22 AM
"f you apply your own discretionary income to your mortgage and then need it down the road for an emergency, you're out of luck."...sure they can, using the exact same tool the UFF does...a HELOC....
Posted by: Harold Byford at 06/29/2008 07:47:27 PM
United First Financial was just named financial entrepreneur of the year by Ernst and Young. I don't think they just give those awards away. They did some research...
Posted by: ARuffNeckBrotha at 07/07/2008 05:36:22 PM
I have read all the comments and I have one question that is not addressed at all: After spending $3500 for the software, do you actually own it? Or do you have to keep logging on the website to update your financials? It would seem to me that UFF is reselling the same vehicle to different folks all the time. What if for some reason they go out of business, get shut down for what ever reason - think Bear Stearns - it could happen. What then happens to the initial $3500 investment? What happens to the ability to "log on" and update the financials?...Some please help me to understand - I have $3500 to burn, but I need some assurances - really I do.
Posted by: Rick Black at 08/22/2008 01:56:38 AM
There are other software programs that you DO OWN and run on your own computer, unlike U1st. Application based programs allow you to change your info when your info changes, without counting on a mlm company still being in business. Plus it comes with the education to operate the software, that is priceless. The software is only as efficient as the software operator...
Posted by: Amber at 09/04/2008 01:08:27 PM
...With the Money Merge Account System you have the potential to pay off your 30 year mortgage in 1/2 to 1/3 the time. So do you want to pay off your home in 10-15 years or 24.5 years as in the example? I suggest doing your own research on the company and deciding for yourself if the program is right for you....
Posted by: Ted Hillison at 09/14/2008 05:17:32 PM
Like most things in life a vested interest (in this case a financial one) provides a good motivation to make this strategy work. Also, while the example is appreciated how would I be able to track this over time? Short answer...I wouldn't. Really the point here is that if people could have done it by themselves over the last 30 years they would have. yet here we are with higher consumer and mortgage debt levels than ever before. People can't do this by themselves. In my best estimation, the $3500 spent on this program to track, incorporate alternative scenarios and simply provide an ongoing register of money that I'm spending and saving is a valuable tool that many people don't do on their own in the first place....Just like everything there are folks this won't be good for. but with consumer and mortgage debt at record highs a proven tool that provides guidance to pay off the massive amounts of debt families are buried under seems worthwhile to me.
Posted by: Philip Brunck at 09/16/2008 07:38:17 PM
Well, I am very familiar with MMA as I actually sold the software for awhile. After doing so and researching other methods I have found several very inexpensive or actually free methods that allow you to accomplish the same. In fact, I am on course to pay my house off in 1/3 the time or maybe a touch more depending on future economics. It's not rocket science just consistency and determination.
Posted by: Max at 09/27/2008 11:00:56 PM
msg for Philip Brunk. Could you share some of the free method to pay off your mtg in 1/2 the time?
Posted by: Jim at 09/28/2008 11:18:32 PM
Wow! All these naysayers about the MMA! In keeping this short, I bet not one of these people have ever USED the MMA like myself. They've probably never used MS Windows either...probably still stuck in DOS for Dummies! What do they say now with our current ECONOMIC MORTGAGE MELTDOWN, threatening to destroy our entire country??
Posted by: Craig Hansen at 09/29/2008 07:39:48 PM
Kiplinger's remains the most high-profile and trusted publication to review the Money Merge Account, and nothing in this review is inconsistent with the findings of other reviewers like syndicated financial radio talk show host Dave Ramsey, forensic accountant Tracy Coenan, or CNBC financial advisor Ric Edelman. UFirst agents don't like it, but there is nothing special about the Money Merge Account, except it slows potential debt repayment.
Posted by: Mike at 11/04/2008 06:26:22 PM
As a financial educator for nearly 20 years, I always recommend the following to my students: Whenever you research anything, make sure (to) talk to people who actually use the product or service, for they are the only ones who can truly provide accurate and credible information. Positive or negative "opinions" from anyone else, including so-called experts, should hold very little, if any, credibility. When I was referred to the Money Merge Account by a colleague, I was skeptical at first but kept an open mind. When I decided to become a client at the beginning of 2007, the software showed I would pay off my first mortgage and equity line, approximately $340,000, in 12.4 years (I had 26+ years left on my first mortgage alone) with no change to my household budget. Since then, I've paid down over $35,000 in mortgage debt, haven't changed my budget or lifestyle at all and am currently down to 11.1 years to pay off both loans. I started with the second version of the software, then was upgraded (for free) to the third version last spring. My UFirst agent told me the fourth version was recently released and I'll get upgraded to that for free as well. With the new version of the software, which will enable me to pay off my first mortgage, equity line, vacation home and one final credit card, I'll be completely mortgage and debt free in just over 10 years, saving over $400,000 in mortgage payments. Apparently, the mathmatics involved with the software has progressed even farther!... In my humble opinion as a client of the program and my professional opinion as a financial educator, it is apparent Mr. Esswein is not a client of the program...I have referred friends and clients to my UFirst agent, and to a one, their experiences have been extremely positive...
Posted by: Bill at 12/11/2008 12:22:08 PM
... I am a customer and in financial services and I recommend this to all my clients. They have successfully eliminated $10M in debt with this system.
Posted by: Richard at 05/11/2009 12:49:47 AM
Would you rather pay $70,000.00 in interest or save $183,720.00 over the term of our loan. Money saved is money earned. The $3500 was never felt. The MMA was was the guideline for us. No brainer huh.
Posted by: calvin at 06/05/2009 11:14:17 PM
"Would you rather pay $70,000.00 in interest or save $183,720.00 over the term of our loan. Money saved is money earned. The $3500 was never felt." Of course it wasn't felt....it got lost in the ten's of thousands in extra payments....that you could already do on your own for free. $3500 down the drain....
Posted by: SJ Piccione, Jr. at 08/16/2009 12:10:52 AM
...I ordered the program, I used it for 180 days and now I can confirm that you can do this yourself. Should I just take your word for fact because of what justification of your experience with this? Next article please.....you actually sound like most of our Congressmen. Fluff but no fact. Thanks anyway, maybe you should buy one and use it and then make a comment. We have 3 CPA's with Masters degrees using this program, successfully and they stated, we could not do this on our own...
Posted by: Paige at 08/17/2009 01:59:10 PM
I am a client of the Money Merge Account for the last two years. It was recommended to me by my financial advisor, to assist me in managing my money more like a bank manages their money. After using the program for two years I have eliminated 50% of all my debt, I have built up the proper emergency fund, increased my cash flow $500 per month, I have maxed out my IRA contributions both years, and have been able to take two great vacations, all with the same money I was making. The best part is I am using the banks money to cancel out it's own interest it was charging me. .... There is more to the program which is not mentioned in this article. As far as doing it by yourself, after being on the program for over two years, I would have to say it would be near impossible to run the full Money Merge Account on your own. If I took the time to learn the algorithms and wrote my own program, I could probably figure it out, however I have a life to live. If someone already figure out a better way to bank and I will never have to pay full interest and in many cases no interest anymore then I am interested. The way I look at it is I could study and learn to build my own car, however some one has already figured that out for me, so all I have to do is purchase one.
Posted by: Craig Hansen at 09/08/2009 01:30:27 AM
Paige, the MMA is not like buying a car. You can not build a car yourself as well or as economically as buying one from a car manufacturer, but you can prepay your mortgage yourself and save more money and more interest without the MMA.