Fact or Fiction: Mortgage free in 1/2 the time?
While at football practice, one of the parents passed out a flier for their business. Being an entrepreneur and Guerrilla Marketing fan myself I gave it a read. The pamphlet read:
BE “MORTGAGE-FREE” IN LESS THAN HALF THE TIME
THIS PRODUCT HAS BEEN TOUTED AS THE MOST REVOLUTIONARY MORTGAGE PRODUCT TO HIT THE INDUSTRY IN DECADES AND HAS HELPED TENS OF THOUSANDS OF FAMILIES NATIONWIDE TO DATE.
THIS INTEREST CANCELLATION PROGRAM WAS DEVELOPED AND IS SUPPORTED BY AN A-1 D&B RATED COMPANY. THIS PROGRAM IS ALSO SUPPORTED BY THE MORTGAGE AND BANKING INDUSTRY WITH AREA BANKS PARTICIPATING IN THE PROGRAM.
How is this possible?
I frequently find that the old saying of “If it looks too good to be true, it probably is”. In this, it did indeed look too good to be true, but my curiosity led me to do a little digging. I first visited the referenced website to see what I could learn.
The product offered is a money merge account or MMA. The primary intent of the MMA is to payoff your mortgage earlier by reducing the interest accrued. The process is a bit complex and requires 3 primary components: 1) A Checking Account 2) A HELOC (Home Equity Line Of Credit) and 3) A first mortgage.
Once an MMA is set-up, it works as follows:
- Your paycheck is transferred from your checking account into your MMA line of credit (your HELOC).
- Throughout the month you pay your bills using your HELOC. The amount of money remaining after your bills are paid remains and reduces your mortgage balance.
- The MMA software will guide you on when to make money transfers from your HELOC to your mortgage and from your mortgage to your HELOC.
Software you ask? Yes, software. The MMA is really software that uses mathematical algorithms to direct you on when to make money transfers. The software is designed to minimize the amount of mortgage interest you pay, thus reducing the term of your mortgage.
Fact or Fiction?
It’s all fact, at least from what I’ve read. But let’s dive a little deeper. Back to the software. The software for this program runs $3,000 – $4,000. Without the software, you can’t use the MMA. Yes, $3,000-$4,000.
While the software does in fact optimally manage your payments, and reduce paid interest, this is something you could just do yourself by paying extra on your mortgage. The MMA is basically leveraging the money sitting in your checking account to reduce the mortgage interest. By making your own extra payments you are essentially doing this yourself, although with the MMA program you should pay less interest and therefore pay off your mortgage sooner.
Is It Right For You?
The decision to use an MMA or not is really a personal choice. If you are very disciplined and can pay extra on your mortgage, than it’s probably better to do it yourself. If you aren’t and desire to pay your mortgage off sooner, than it may be a good option to consider. I would highly advise you spend some time reading about it and researching it in detail before making a decision.
Another point to consider is that the MMA basically recommends that you keep no money in your standard accounts. It seems to advise placing your savings and other related money into the MMA, and that doing so will further reduce the payment period. While this is true, that would mean in the event of an emergency or unplanned expense, you would have to borrow from your HELOC, further putting you in debt.
Which brings to the forefront my biggest personal issue with this plan: it requires a loan. With the MMA, you are basically living off of a line of credit, and relying on that line of credit for emergencies. This is something I don’t think I would be comfortable with given my journey to be debt free.
One of the biggest issues people seem to have is paying the $3,500 or so for the software. This kind of fee screams “scam” to most. Others would argue that $3,500 is a low price to pay to cut your mortgage in half.
- The Simple Dollar gives his perspective here. He has more than 894 comments on the subject when I looked!
- Get Rich Slowly discusses them here in response to some reader questions.
- FatWallet Forums has a discussion on MMAs.
- Finance is Personal just says no thanks
What is your take? Anybody have an opinion on MMAs? How about any additional insights to the “inner workings”?