I have some regret that I have to admit to about these programs. I feel like I failed consumers by allowing them to be misled for far too long. The truth of the matter is that I have done some more calculations, many of which I should have done back before I even posted my first blog about the subject way back in February 2007. The bottom line is that I have now done those calculations and it is time to let the truth out.
Once again, I have simply taken the information from United First Financial's own presentation on their Money Merge Account™ program and run the numbers. Then I ran them again because I couldn't fathom the results. Being as skeptical as I am, I just couldn't believe the results, so I ran them more times and was absolutely astonished at the results.
Over and over again, the results came back with a very clear message:
"MONEY MERGE ACCOUNTS ARE A COMPLETE WASTE OF MONEY AND WILL ACTUALLY COST YOU MORE MONEY NOT SAVINGS"
That's right, and I am sure those UFF agents will want to argue this left and right in trying to defend this product (after all, they want your money), even saying that it's benefits found in the "sophisticated algorithms" go above and beyond the benefits related to the primary mortgage payoff, including that of being able to see the true cost of a purchase (cost plus interest over time, or cost of not investing elsewhere). Try as they may, their own presentation shows its real value, $0.00, actually it costs you.
Here are the calculations once again and how it proves the Money Merge Account (MMA) actually prolongs the payoff and costs you basically its full price tag:
Mortgage: $200,000
Interest Rate: 6%
Loan Type: 30-Yr Fixed
Discretionary Income: $1,000
Quick recap: The United 1st Financial presentation's claim is that the MMA program will pay this mortgage scenario off in 10.4 years and the program costs $3,500.
OK, here is where my calculations changed. All I did was add the $3,500 price tag to the 2nd mortgage payment as extra principal, then simply added $1,000 extra principal (all the discretionary income) each month from the 2nd month going forward until payoff and guess what. Well, since numbers don't lie, here are the results...
UFF Presentation $3,500 Extra Payment Mortgage Payoff 10.4 years 9.92 Years Investments @ 6% $973,000 $1,023,307 Investments @ 8% $1,231,000 $1,306,090 Investments @ 10% $1,575,000 $1,685,967
Run the numbers for yourself, but the truth of the matter is this...MONEY MERGE ACCOUNTS WILL ACTUALLY COST YOU TIME AND MONEY!!!
The arguments that the sophisticated software will payoff over time don't hold water.
The arguments that the software can do a better job than you can on your own doesn't hold water either.
In fact, since you are making your mortgage payment every month already, all you have to do is adjust the payment amount on that check and that's it. If you have recurring payments automatically, you never have to think of anything again. YOU CANNOT GET ANY SIMPLER THAN THAT AND YOU WILL BEAT THE MMA according to their own presentation and facts presented.
So, tell your friends, family, anyone you come in contact with to prevent them from wasting their money on this expensive software. They can do better. You can do better. Of course, I can help you employ strategies that create even more wealth, but this information will help you beat the mortgage acceleration programs.
So, again, please accept my sincerest apologies for not running these calculations and exposing these facts to all of you earlier. I may not have saved everyone from buying these programs, but I may have helped a few people from being ripped off.
(Update for clarification due to some apparent confusion...1) The "2nd mortgage payment is the second payment on the primary mortgage, not a real 2nd mortgage. 2) I do not advocate simply throwing all of your money into your home like the comparison suggests. Of course, if you have been reading my posts for any length of time, you would already know that.)
Robert,
Kudos on your honesty, rigor, and owing up to a mistake… You are a gentleman and a scholar!
There’s no shame in an error… only in not owning up to it and not correcting mistakes.
In this case, it’s understandable; because that mistake (or omission) is exactly what the purveyors of these schemes want you to do and are counting on!… They intentionally mislead and deceive folks with incomplete comparisons and slick sales techniques... preying on financial ignorance to sell their ‘software’. Even the financially savvy and educated can be duped if they don’t understand both the math and accounting principles, sit down, and do the rigorous analysis and calculations necessary to properly analyze any investment.
It’s all nothing more than simple common sense, but the devil is in the details!
All of the sales presentation and claims we have ever seen are in our opinion intentionally deceptive, dishonest, and misleading… who in their right mind would spend thousands of dollars for something that is ultimately worthless and will loose them money?… it’s simply a horrible investment!
I had posted a comment on your blog last year (with a link to our site) basically saying exactly the same thing... we’ve been posting the information for over 2 years now, and have been educating and helping as many folks as possible!
... I think my original comment ‘disappeared’ due to some broad editing strokes amid the flurry of flack and bs you were getting from the many financially ignorant and fanatic salesmen who ‘drank the cool-aide’ and want to believe...
So, if you will permit me this time:
http://www.integramortgages.com/financialvoodoo
As stated above, folks can pre-pay their mortgage on their own, save more money, and get better results. Folks don’t need any software, just paper and pen to write out a simple budget.
As for psychological benefits, if any… there are plenty of low-cost alternative budgeting and personal financial mgmt software such as Intuit Quicken and Microsoft Money both of which sell for only $40, are more sophisticated, and backed by large reputable companies.
A HELOC is not necessary in order to take advantage of any potential interest rate arbitrage, which when properly analyzed is de minimis. Likely the HELOC balance transferring voodoo will end up costing folks more in total interest and finance charges not less.
If folks are looking to generate more interest income (discretionary income) from their cash accounts then there are plenty of ‘risk free’ FDIC insured alternatives to the high risk HELOC balance transferring arbitrage scheme. http://www.google.com/search?q=online+savings+account
Don’t be fooled, financially these merge accounts in the USA are inferior to the many free and low cost alternatives, and they don’t replace the need for individual financial responsibility and self discipline!
Find out all the facts, understand your alternatives, and understand the financial decisions you are making. Taking financial advice from unqualified ‘software’ salesman is simply a recipe for disaster.
The interest savings come only from pre-paying principal with income that you earn… it’s not rocket science; it’s just simple common sense! Don’t waste your money and don’t be misled!
http://www.integramortgages.com/financialvoodoo
with a few references:
http://www.integramortgages.com/Mortgage_Equity_Accelerator_References
Posted by: Ron | February 02, 2008 at 02:19 PM