Money Merge Accounts: How Do They Work? (Beyond the Software) - Part 1

To start the series, I want to make sure you understand one thing, your situation is unique and this or any other strategy you read about (or are pushed into) may not be the best for you. 

Money Merge Accounts are being highlighted as the best thing ever to pay off your mortgage as fast as possible and become financially free.  Undoubtedly, you have seen or heard of being able to pay off your mortgage in as little as 6 or 7 years. 

Impossible?  Scam?  Too good to be true?  NO!

However, before you decide on purchasing a Money Merge Account, or any other mortgage acceleration program for that matter, you need to understand the truth about how they work and determine which one will be best for you.  You also need to seek proper guidance from a mortgage professional that can offer a wide variety of solutions crossing the realm to include equity harvesting.  Why?  That is the only way to ensure that the mortgage solution you choose is the best one for your situation. 

This series will go deep into how these work and why you really do not need expensive software to accomplish the same thing.  Heck, you can even use one type (a little more expensive) to set the program on cruise control and never even think about it again.  More on that later.

I will also show some other strategies, including touching on equity harvesting, to show how these strategies can outperform the mortgage acceleration programs, or simply be a more viable alternative for you.  For the majority of you, these other strategies will provide increased liquidity, safety and rates of return compared to the mortgage acceleration programs.

On to the basics....

Money Merge Accounts and other mortgage acceleration programs such as CMG's Home Ownership Accelerator, utilize a modified form of a Home Equity Line of Credit (HELOC) also referred to as an ALOC.  The reason for this is to utilize the interest calculation differences to minimize interest expenses and maximize principal payoff.

Make no mistake about it, the majority of the savings from any of these programs comes from you applying extra principal payments into your primary loan.  The HELOC allows for an "interest cancellation" effect to take place which "accelerates" the mortgage payoff.

HELOC interest is calculated on an average daily balance, so paying extra principal from your HELOC into your primary mortgage, then dumping your income into the HELOC takes advantage of this difference.  You then pull money for expenses out of the HELOC as you need them, but any money you don't spend is used to keep the HELOC balance down, thus minimizing interest accrual.

When the balance gets low enough, assuming you are utilizing the software, the program will instruct you to pay more money from the HELOC into your primary mortgage.  This means you are using your "discretionary income" to pay off your mortgage, which may raise a caution flag in your financial situation.  More on that later in the series.

The bottom line in how these work is being more efficient in how you apply using any or all of your discretionary (or disposable) income to pay off your mortgage as quickly as possible.  The software assists you in doing this a little more efficiently, but the software itself does not provide any "real" savings, simply a means to make the program work more efficiently, assuming you use it.  I will address that more later as well.

The next part of this series will be basically a reiteration of how these programs work.  I will, however, add a table that shows how the money is transferred around in a "best case" scenario.  I will then likely touch on how these programs may not help you and show how you can do this without expensive software. 

Continuing in the series, I will show some other strategies, many of which have been posted by me before through the times, that show potentially better strategies than to focus on paying off your mortgage.  Many of these strategies, if implemented and followed, could actually put you in a position to pay your mortgage off even faster than a Money Merge Account can.

I will then end the series with a recap of the various scenarios, how they compare and which one(s) will lead to the most wealth over time.  Again, remember that even the ones leading to the most wealth may not match your specific financial goals, so do not be "swayed" into either one.

As food for thought before my next post in this series, remember the following...

You cannot focusing on saving money and investing money at the same time.  In other words, if you go for a mortgage acceleration program, in order to make it work as advertised you will not be able to divert money into other investments to achieve other financial goals.  To do so renders the benefits of such programs as just about useless.  Choose one strategy and stick to it in order to achieve that strategies true benefits.

Comments

[Steve]

Great article! Do the CMG and the MMA product differ in any substantial way? I look forward to your series as your current article does not clearly delineate between the two.
My understanding is that CMG puts the entire mortgage into a HELOC-like instrument while the MMA typically works with an existing mortgage (there are exceptions), and utilizes a smaller HELOC to provide the interest cancellation effects. Could you define the differences between programs as you bring them up?
I'm also interested in your upcoming article(s) detailing the notion that one cannot invest and participate in mortgage acceleration at the same time. Wouldn’t that depend upon your income and financial goals? Clearly, money spent on the one could optimize the other...but so would taking food, car, expense et al monies and focusing them in like manner. The point: many people CAN do both and balance the pay down / Investment opportunities by making sure that the level of discretionary income going into the HELOC/ALOC every month is meeting their mortgage pay down goal; anything over the amount that meets their pay down goal continues going into the stock market, 401K, real estate, etc. The reverse is also true.
I think this conversation is a wonderful overview and should prove very informative.
Steve

[Robert Ashby]

Steve…
Thank you for taking the time to comment and for the compliment.
First off, let’s clarify that the MMA (Money Merge Account) is simply web-based software and requires a HELOC to make it work. Since most HELOCs do not have the required features, chances are that the borrower will need to get a new HELOC to make the whole thing work.
As for CMG, I will get into the differences and pros and cons later in the series.
The statement about the inability to “focus” on paying off your mortgage and investing money at the same time is spot on, the key word being “focus.” While you can pay off your mortgage and invest at the same time, you are not maximizing the efficiency of either; hence you cannot “focus“on both.
I hope this answers your questions for now and the remainder of the series will likely answer some others as well.
Thank you again for your input and I look forward to more as the series progresses.