What is a Money Merge Account?
Maybe you have heard about this whole Money Merge account thing or United First Financial and wondered what it is. I did too. I first found out about these programs a little less than two years ago and did some quick investigating, but didn’t do enough research to fully understand the Money Merge thing.
Disclaimer: I do not currently have a Money Merge Account. All the information included here about them is from interviews, research, building Excel spreadsheets, and my own calculations – not my own personal experience using them. I say this because there very well could be some pieces to the puzzle that I am missing, if you see any please share them in the comments.
Also, right off the bat, this product is not designed to be a quick fix to pay off your mortgage and it should only be used by people who are very disciplined with their finances. Honest MMA companies and sellers of the products have said that themselves. If your life is a financial mess, you need to get it cleaned up before considering a Money Merge Account.
So what is it anyway?
In researching this, I found a couple of good explanations of what a Money Merge account actually is. TheSimpleDollar defines it as:
A “money merge account” is a special home equity line of credit placed on your home. Every time you receive a paycheck, the whole thing goes straight towards first paying off any balance in your money merge account, then the entire remainder of your check goes towards paying the interest, then the principal of your home loan. Let’s say you had a mortgage with $1,500 payments and you set up a money merge account. Each month, you received $3,500 in paychecks, but only spent $1,200 (and sometimes less). That means that automatically $2,300 (and sometimes more) goes towards that mortgage each month – an extra $800 towards principal every single month. This means a 30 year mortgage would be paid off in 13 years and two months.
GetRichSlowly defines it as:
- The homeowner sets up a home-equity line of credit (HELOC), borrowing against the value of his property.
- Some large sum is withdrawn from the HELOC and used to pay down the primary mortgage.
- The homeowner does not deposit his paychecks, etc. into a traditional savings account, but applies them to pay down the HELOC.
- From time-to-time, another large chunk of money is taken out of the HELOC and applied to the primary mortgage.
- In case of emergency, the homeowner takes more money out of the HELOC.
- Though the HELOC will likely have a higher interest rate than the primary mortgage, it’s actually cheaper to maintain because of the way the interest is calculated.
MMA Pros
- Pay your home off in less than half the time (for most people)
MMA Cons
- You probably won’t know for sure what kind of results you are going to get with the program until it is up and running.
- You will need to open another line of credit.
- You have to have to be bringing in more money than what is going out each month in order for it to help much.
- You have to very closely track your payments!
- It will can become very difficult to budget since everything is coming out of the same bucket. And if you you begin spending more than you would otherwise because of that lack of a budget, you quickly nullify the potential gains possible.
Interview with an MMA company
I recently had an interview with the owner of Smart Equity. He agreed to give me some of his time to answer questions that I had about the Smart Equity MMA program and Money Merge Accounts in general. After talking to him, I felt like I got a better understanding of what was actually happening with the system.
The Money Merge Account system
For me, I think I figured out (someone please correct me if I am wrong) a good way to think about it…
Let’s say you had a $100,000 mortgage for 30 years (@ 7%). You would be paying 7% interest on that $100,000. What if you could transfer $10,000 of it into a loan that didn’t charge interest? You would then have a $90,000 balance on your mortgage being charged the 7% and $10,000 that you still had to pay for, but that was at 0%. I think this is what is essentially happening in the Money Merge programs. Once the $10,000 was paid off, you would then move another $10,000 to a loan with no interest. Then you would be down to less than $80,000. If you continue this cycle, it would be paid off very quickly.
From what I understand, this is a very generalized example of what is going on with a Money Merge account. The MMA software does the number crunching for you and always keep you at the most optimal point to pay down the mortgage the quickest. While the software would definitely make this an easier and probably safer process, you could still get great results doing it yourself.
For example, Using the details from the example above…
- 30 year $100,000 mortgage at 7%
If you paid $10,000 at the beginning of the year with your credit card that had 12 months of 0% you would have to pay $833.33 each month to have it paid off in a year. This assumes that you have an extra $833.33 every month over and above your normal expenses. If you repeated this process each year (according to my calculations) you would have the house paid off in about 7.5 years. In those 7.5 years you would have paid $29,912.69 in interest charges. This would have been a savings of $109,596.21 in interest charges if you did this method rather than just paying your payment each month for 30 years.
You can see an example of some calculations I made below…
I will be the first to admit that a $100,000 mortgage or having $833.33 to pay extra each month may not be realistic for most. It is just to illustrate the point and I picked simple numbers to make the example clear.
You need to have extra cash for the Money Merge to work well
What I see from all this is that, just like any mortgage pre-payment plan, the speed with which the mortgage is paid off is directly related to the amount extra you have to put towards it. If you only have $50 a month extra to throw towards your mortgage, sure the MMA software will help a little bit and may even pay for itself over time, but you are not going to be able to pay off your 30 year loan in 11 years. In the example we had above paying principal only on the mortgage would take 12.5 years and that is assuming the whole $100,000 was at 0%, which the Money Merge can not do. It takes it in chunks so that you have large chunks that are getting lower interest rates, but it can’t take the whole mortgage.
A local news broadcast about MMAs
http://www.youtube.com/watch?v=90PgchHluM4
Dave Ramsey’s take on money merge accounts
http://www.youtube.com/watch?v=viuUY47wLjs
My final thoughts on Money Merge Accounts
Doing the research, building spreadsheets and running the numbers has led me to one conclusion. It is worth your while to pay extra towards your mortgage. Regardless of whether or not you use the MMA software, it is worth trying to pay some extra principal on your mortgage on a regular basis – it greatly shortens the time you will be paying on the loan.
From what I can tell, the Money Merge software will amplify the process and will help you stay on track, but if you don’t have extra money to pay towards your mortgage, don’t waste your time.
Also, I will say it again, because it bears repeating: you need to have your finances in order before even considering something like an MMA. If you ever pay bills late, if you can’t balance your checkbook, if you don’t know exactly what is going on with your finances, I do not recommend Money Merge Accounts. If that is you right now, I would suggest trying to pay extra towards your mortgage each month and if you can do that successfully for a while, then it may be worth considering.
If you are interested in starting an MMA, I recommend the guys from Smart Equity. They were very helpful and gave me hours of their time – phone calls, emails, research just to help me understand the product. At $695 their MMA is the cheapest one I have found out there (compared to the $3500 UFF product) and customer support is included.
This article was included in the Carnival of Personal Finance
So, those are my thoughts on Money Merge Accounts. I would love to hear from people who are currently using them or who have more information about them in the comments below!
Related posts:
- Pros and cons of buying vs. apartment renting
- Primerica – The pros and cons
- Money Merge Account
- Find the highest rates on savings accounts with Bankfox
- How I organize my bank accounts
- FSA’s – Flexible Spending Accounts
- Marriage finances: joint vs. separate checking accounts
- Money Mistake #4 – Not having a schedule for bills
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After the last round of discussion, I have a question for you. What do see as the benefit of MMA vs prepaying along with one’s monthly payment?
Joe
Joe,
assuming you are talking about the prepaying I mentioned in the example with the $10,000 each year, I think the benefit would be having a system in place to help us stick with it and maximize the benefits. I think there is also considerably less risk over the credit card idea…
I tried to point out that if you did that prepaying thing I mentioned, your results would be very similar to what the MMA could get you…
I am trying to understand the value you attribute to these programs. If it’s simply a sophisticated reminder to pre-pay principal, or if you find any value to all of the HELOC shifting of funds, which as I understand it, is where all of the transactions are. I am referring to MMA only, haven’t looked at the smartequity system.
Joe
most of the value comes from paying extra towards your mortgage. If you don’t have extra money to put towards your mortgage, it will be a waste of time.
using the HELOC to shift the funds amplifies the process by basically charging a whole lot less interest on a large chunk of money and systematically repeating that process.
But, from what I see, the majority of the benefit comes from paying extra towards your mortgage.
bob and joe
Thanks so much for your previous posts.
Here’s the kicker, I think. If you look at the smart equity page, UFF, etc… they do pay down much faster than if you just add your extra cash flow to your note.
If I go to an amort schedule and type in 250k at 6% for 30 years with an extra 1k per month it pays off in 11y 8 mo.
With Smart Equity it pays off in 9y 1mo.
It looks like these programs have much more value than just a reminder or a “discipline tool”.
If I can save 3 years for 695 dollars, or for that matter 3500 in software cost I will gladly stroke that check.
What are your thoughts?
Hokie,
I definitely agree – they do speed the process up more than if you are just paying extra towards the note, the thing I wanted to make people aware of was that you NEED to have extra $$ to pay each month towards the mortgage or it probably wouldn’t be worth the time/energy…
Hokie – in the classic example, linked to from agents’ sites, the $200K mortgage is paid in 10.4 (i read that as 10 yrs 5 months) The $1000 prepayments as on my spreadsheet pays the $200K off in 10 years 2 months. The extra 3 months it takes MMA accounts for the $3500 fee. 10+ years of moving money in and out of the HELOC every pay period and virtually nothing gained. Not sure what other numbers you’ve seen, I’ve only analyzed MMA. If smart equity promises more, send a valid link, and I’ll be happy to look and comment.
Joe
Joe
What makes your spreadsheets different than an amortization table?
Two things -
Nothing, and that’s the point. One needs no software, no sophisticated algorithms, just prepaying the principal.
And two, it offers an immediate view of what a prepayment’s impact will have on total interest paid. A standard amortization table isn’t too friendly to additional principal payments. Mine allows a monthly extra payment thrown in, and you can enter what you will. And I offer it for no more than most amortization tables off the net, i.e. zero, which is what it’s worth. I don’t obfuscate the facts by claiming that if you use the sheet and pay $1000 extra principal a month that I’m entitled to a cut of that savings, it was your money paying down your mortgage after all.
Hokie – if you think you can’t do it on your own, or that you’ll get a savings greater than the cost of whatever plan you which to buy, by all means, go for it. I can’t tell any longer if you are truly asking for help, playing devil’s advocate (ironic, given the monikor of this blog), or an agent who is trying to draw out us ‘nay sayers’.
Joe
Joe
I am not a sales person for any of these companies. I am trying to find the truth.
Before you start to ASSUME, we all know what that does, let me give you a little back ground. I am 31 and to this point I have never had any credit card debt and currently have no debt except for my house. I am also in the top 3% of earners. My financial discipline level is very high. I invest every month 15-25% of my income as I have done since I was 23. I am a commission based sales person(surgical device) hence the variance in my monthly income.
In the past I have had little interest in accelerating the pay off of my house. But recently I have realized that my house is a liability and the accountants are just flat wrong when they tell me I get a great tax break. Me pay 1 dollar to get 30-40 cents back, no thanks!
I was extremely skeptical of these programs but the bottom line is that what UFF is willing to put into a contract is nearly 5 years ahead of what amortization schedules tell me I can do with what I am willing to put against my note on a monthly basis. UFF can do it in 9 years and the traditional pay down takes nearly 14…. I spoke with Smart Equity which Bob has spoken of a week ago and they are coming in close to the 9 year pay off as well. Since it seems like everyone agrees these are not a scam HOW DO THEY DO IT SO MUCH FASTER????
I am not trying to “draw” out anyone. I am just very interested as 5 years is approximately 100k savings for my family.
I assumed nothing, I offered a multiple choice and you answered me. No harm, no foul.
I keep referencing my sheet vs the agent’s site and presentation. Their numbers are at:
http://www.discovermoneymerge.com/images/template/page2.png
and as I stated, my numbers are better, given the same rate and available extra money. More than that, I don’t know what I can tell you except they simply don’t do it faster, they insist you ‘can’t’ do it alone. If you simply send the extra payments in each month with your mortgage, you will be ahead. Emailing me for a copy of the sheet can’t hurt either.
Consider this – if you don’t understand how it works maybe you should have it explained to you. If they can’t, well isn’t that a sign something is wrong?
Joe
Joe
On Friday Bob agreed that the MMA, Smart Equity, Equity Genie etc… does speed up the process faster than just applying your discretionary income to your note. I have been looking at these programs for 2 months now and it just seems that there is a savings in time and money by using them.
I would like to take a look at your spread sheets. Do I need to go to our website and email you from their?
Yes. You can click on my name, above and drop a comment to me, doesn’t matter where from. You put your email in the comment email field and I’ll send it. I usually turn these around quickly.
Not sure what numbers Bob saw. As i said, even the agents sites only show what they show.
Joe
Is it possible that if an individual has more cash flowing in and out of their(higher income) account the “float” could make up some time ?
I posted this someplace, I forget where. In the classic example (I refer to that to compare apples to apples, as an engineer I learned to isolate variables to see what impact there is by changing just one) there is $5000 monthly flow. MMA magic (you know, the ’sophisticated algorithms’) claims to find extra money by taking advantage of the idle cash sitting in one’s checking account. Let’s assume that on $5000, there’s an average balance in checking of $3000, is that fair? Now, if we can somehow get 6% on that balance, that would be $180/yr, right? This is what they do in the MMA system, by sending the whole $5000 to the mortgage and borrowing off HELOC to make up the difference until you can pay it down. But $3500 over the 10.4 years in the example will take payments of $37.77/month to pay off, or $453/yr. If you have higher flow, say $10K/month, you might extract $360/yr, still not enough to even pay for the program. And if your flow is $15K/mo, you are making $250K/yr, you really want to waste all the time it takes to save a few hundred dollars a year? You make $125/hr at this rate, and taking an hour per month of juggling money makes no sense if you are saving so little.
Joe
Would all of this work better using a 0% transfer to a credit card for 12 months, and keep repeating the process using new credit cards?
@Chris
well, as I mentioned in the example, I think that could work, the variables to consider – that you will always be able to get 0% offers, that you are sure you can pay off that big chunk on the CC, because if your rate shoots up to 17%, you are going to lose a lot of money quick…
chris – I did something like you suggest. Took a $30K 0% credit card advance. Sent it to my 5.25% mortgage. Now, it’s coming due in January, and I paid it down to just about $10K. My HELOC rate is 2.75%, so I’ll pay the card from that. As Bob said, this is a risky approach if you have trouble paying off the card and/or if the HELOC gets frozen.
I would like to give you an update on my MMA. I was really hoping that the HELOC would be some magic pill, but of course it is not….just like you said
BUT, I have found this program to be much like a physical trainer. It never lets you cheat or take the easy road. It always takes every available cent at months end and sends it to the note. I believe these programs work just due to the fact just mentioned. I am very disciplined financially but there is no way I would ever be that agressive at month’s end. My wife and I made the decision 6 months ago that we are going to be mortgage free in 8 years, age 40. I would not even look at a product like this unless you have 0 CC debt, no car payments, you are putting 15% of income away for retirement, and have a fully loaded 6 month emergency fund. I think if you have all of these in place then the MMA type programs can help you become that much more focused on your goal.
Call me crazy but if I can save 2 years more off of my mortgage by spending 3500 I will gladly pay it. The focus and intensity of this program, nit the HELOC shuffle, is what makes it work.
Regards,
Adam
Adam, where did the $3500 come from? Had you sent it right to the mortgage, you’d have knocked off as much as 18 months right off the back end.
What I am curious about, though, is that you describe the ideal customer, and that’s great. But your profile seems to be someone that can easily do this on their own. At month end, what exactly does the MMA tell you to do that you couldn’t do on your own? As you state you have the 6 mo emergency fund, HELOC need not apply. So at month end you can easily just send all funds over to the mortgage.
Agents promote the magic, the few cents per month the HELOC shuffle helps them capture, but you seem to not even need to use the HELOC. Where are your savings? It’s all your own money.
Looking for advice. Everyone keeps referring to paying off their mortgage quicker, but no one is mentioning any additional debt. My husband & I have student loans, credit card debt, etc. I like the idea of a program telling me what to pay & when to pay it. Call me lazy, but I prefer mom. I would rather spend my time with my daughter than trying to figure out who to pay first & how much to pay them in order to keep my interest payments to a minimum & pay off my debt quickest. We already have a $50,000 line of credit established. Would an MMA from a less expensive provider like Equity First be a good investment? Any advice is greatly appreciated. We need to do something to help us reduce our debt quicker. Thanks.
Kim – What is larger, 18 or 12? If you can answer that, it’s simple; make all minimum payments, then, at the end of each month, pay all extra money to the highest rate debt.
If you can swear off charging more than you can pay each month, then paying off the cards with the HELOC can work, but it’s a slippery slope. I’ve seen people take $10,000 of 18% debt, put it on a 6% HELOC, and then charge the cards right back up. I can’t stop you from doing that, nor can MMA. It’s a scam for sure, you can see links on my blog, and endless posts where I go through the math.
Kim
I wouldn’t touch an MMA until you have your debt situation taken care of… The system is designed for people who have a whole lot of financial discipline, if you are looking for someone or “something” to tell you what to do I don’t recommend using an MMA – I know that some of them have that feature, but without a lot of self-discipline, I don’t suggest getting involved in an MMA
What I find most interesting here is that people are taking advice from those who have never used a money merge account. If I were to buy a GM (I currently own a Ford) I would not talk with people who only drive a BMW or Chrysler. I would talk to people who are driving what I am thinking about buying. It’s like getting advice on raising kids from someone who doesn’t have any kids. Think about it, and consider the source.
Why is that? Given the nature of the product (i.e. a scam) users are those already to be innumerate, and therefore incapable of understanding the product itself and victims of the scam.
Your logic is how Madoff got so many clients. Think about that. Almost by definition, the users are happy, either ignorant of their own situation, or agents trying to peddle this to the next mark. Look at the numbers, more than half the users sign up as agents.
Sorry for the double post.
Steve, are you agent number 868691?
I’d expect you to disclose that, so readers here can consider the source. I should have been tipped off by the analogy. No agent that I found yet can discuss MMA without comparing it to something completely unrelated. I like to compare MMA to getting robbed of $3500 at knifepoint, only there’s no knife, and you’re happy to give the money away, thinking you get something in return.
Thank you for your opinion Joe. Your blog has a lot of great information on it and you are a fantastic resource for financial information. My point was simply to encourage people to seek out information on this topic from someone who had actually used the product.
I purchased the UF MMA in September. Bottom line: It’s not a scam but it does NOT pay your house off any faster. The HELOC shuffle does not net a single penny in increased savings or payoff.
The MMA takes every dollar of any money at months end and puts it against your note. If you have the discipline you can do this yourself easily.
I purchased the software due to the fact that I received a written guarantee of a 9.5 year payoff where as with my current extra 800/month in payments yielded a 14.5 year payoff.
What I later realized AFTER I purchased the program is that the rep took my monthly income and put it down as bi-weekly instead of 2x/month…. This added another month of income which I do not earn. Thus the extra 5 year payoff.
Do not buy these programs!! Get on a written budget and empty your checking acct each month against your note. Before doing this type of aggressive pay down I would have a fully funded EMERGENCY FUND of 6 months expenses!!!
My husband and I have been utilizing the MMA software since February 2008 and will be mortgage free November 2013. Our original mortgage was $289,000. We are in a unique situation where we are debt free except for our mortgage, have an excess of money in our account each month after bills and continue to stick to our monthly budget.
If anything, it has allowed up to recognize the areas in our monthly budget where we were over-spending and have been able to tighten our monthly budget even more. For example, we are eating at home more vs eating out!
I would agree that this program is not for everyone but it made sense to us. We ran the various spreadsheets and needed the software support to stratiegically transfer the money to our mortgage in order to save the most. I will be a true believer if we are in fact mortgage free in November 2013!
My advise: do your research and be honest about your ability to stick to a monthly budget.
“Using the banks money” – We started out by taking out a loan called a mortgage, using the bank’s money. Now that it’s time to pay the loan back, we need to get the money from somewhere. Usually, it comes out of our paycheck. But MMA claims that if we use a HELOC, we are not using our money anymore, we are using the bank’s money. But, wait, we started all this by using the bank’s money to take out a mortgage and now we have to pay it back. So that means if we use the bank’s money by taking a loan out of the HELOC, we have to pay that back, too. So all we did was postpone having to pay the bank back by using the HELOC money to pay the mortgage. We still have to pay the HELOC back. Where is that money going to come from? Out of our paycheck. So why should we spend $3500 on MMA to play a money shell game with a HELOC?
“Interest cancellation” – MMA claims that by loading up the HELOC and running our paychecks through the HELOC, we reduce the balance so much that we save lots of money that way, and that alone is worth $3500. OK, so how much can we save? Well, let’s assume our mortgage rate is 6%. That means each month, we are charged 1/2% on our mortgage balance, the whole balance. But if we are using interest cancellation, the most that we can save is whatever our monthly salary is. So, if we bring home $5,000, the largest HELOC balance we can offset is $5,000. How much will that save? $5,000 times 1/2% is $25. That’s $25 per month or $300 per year. So MMA wants you to spend $3500 upfront to save $300 per year. Do you know how much interest you would save if you just put $3500 towards your 6% mortgage? OVER $4,000.
“Factorial math” – MMA claims no one except a computer can figure out the best possible way to pay all your bills and debts because of all the possible combinations. LIES. There is only one SIMPLE BEST way to pay off all your debts. You pay off the highest interest debt first and work your way down using a DEBT SNOWBALL. It only needs addition and subtraction.
Jimmy, you are more right than you know. At 6%, the $3500 turns into $20,000 over 30 years. Not just $4000 savings, but $16,500 in saved intest, plus the $3500 you didn’t throw away. $20,000, my friend…..
Yes, =( you are right. I reran my calculations for other posts.
Well, I prefer to think of it as “Jimmy was righter than he thought” esp considering the board we are on. Safe holiday to all.