Mortgage Accelerators, Money Merge, and Paying Your Mortgage Down

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My article Debunking the Money Merge Account Scam has been getting a lot of attention and a large amount of hate mail lately. The scamsters that sell these things love to send me hate mail for exposing the fact that their particular emperor has no clothes.

Here is the bottom line: The only benefit these programs actually get is about two weeks temporary reduction of principal per month, based upon your take-home pay. On a $200,000 mortgage at 6 percent, that is worth roughly $4.41 per month under ideal conditions. It will pay the mortgage off approximately three and a half months early. On a $400,000 mortgage at 7%, it's worth about $11.41 per month under optimum conditions, and will pay off your mortgage a little over five months early.

They programs do not give you the right to make extra payments, and they don't save you the money that those extra payments saves on your mortgage. Anyone who doesn't have a "first dollar" prepayment penalty can do that, any time they want, for free, and if you do have such a penalty, Mortgage Accelerators and Money Merge accounts will not prevent that penalty for being levied.

What they do is charge you anywhere from $2000 to $6000 as a sign up fee for these programs, and most of them require a Home Equity Line of Credit (HELOC) as well, increasing the cost of interest of whatever money is in them. Quite a few of them also require a monthly fee that varies from $1 up to about $8. I have yet to find one of these where the numbers say that the gain is not more than offset by the fees.

Suppose instead, you spend the sign up fee on a one-time pay-down of your mortgage. Instead of paying $2000 to $6000 for this program that gets you a few bucks per month, you spend that money on a one time pay-down of your mortgage. I have yet to find a scenario where that doesn't pay off your mortgage earlier, and have a lower balance the entire time it is in effect, so that if you do refinance or sell as most people do, you're ahead of the game the whole way.

The people selling these scams love to pull the ad hominem. They accuse me of not liking the program because people on this program won't want to refinance, and there's usually something in their accusation about how I cannot sell the program. Both of these claims are nonsense. I have idiots begging me to sell these things on a regular basis, and I could sign up with any one of them and make money. I have not done so, because these programs will not deliver, and my entire method of doing business is predicated upon doing the right thing for the client, so they are motivated not only to come back to me themselves, but also to send me anyone they care about. Furthermore, people on these programs refinance almost as often as anyone else. The difference in the numbers these programs make is a lot less than saving an eighth of a percent off the actual interest rate, and I can prove it. If I have a refinance that saves them money starting the day it happens, they're going to sign up just the same as anyone else.

The only effective selling tool these con artists have to sell these programs is the appearance of free money. They assume that the money for extra payments comes out of some hyperspatial vortex. They do generate a few dollars per month in interest savings through temporary payment reductions, but as I covered above, you're better off using the sign-up fee to pay the balance of your mortgage down. Any extra payments that do get made don't come out of a hyperspatial vortex - they come out of your checking account, which comes from your paycheck. Such money for extra payments is then not available for other things, whether it's a vacation, a new car, an alternative investment, or just blowing the money down at Joe's Bar. The extra money is the same, and you have the exact same right to use it to pay your mortgage down faster with or without one of these programs. If you have it extra to pay down your mortgage, you can do so regardless of whether or not you have paid the sign-up fee for one of these scams. If you don't have the extra money, then obviously it's not going to get paid to your mortgage, is it?

In fact, one of the things these folks never mention is that the entire question of whether to pay off your mortgage faster is an open one, subject to a lot of variables, and the numbers in most cases argue that you should not. If you can make more with an alternate investment than you save by paying your mortgage down, the default answer is going to be that you should go with that alternate investment. Since average return over time of bonds and stocks and other possible investments is considerably higher than the six percent interest of your average mortgage, with federal and state deductions for mortgage interest paid lowering the effective cost of the mortgage further, it's silly to pay down your mortgage faster unless there are other factors. A mortgage accelerator may actually lock you into that when there are better, smarter, more profitable alternatives available. Finally, even though paying your mortgage down may be the alternative best in line with your current situation and plan for your life, paying any kind of sign up fee or monthly maintenance for such a program is a waste of money when you have the perfect right to make those payments on your own, for free, at any time you choose. Any fee you are thinking about paying for one of these things is a waste of money. You are better off putting that fee towards a one time direct pay-down of your mortgage.

Caveat Emptor

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About this Entry

This page contains a single entry by Dan Melson published on September 15, 2008 7:00 AM.

How Much Can Lenders Low-Ball Their Quotes? was the previous entry in this blog.

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