So I called my folks tonight. Some time in the past month, they’ve decided to subscribe to a service called a Money Merge Account , provided by United First Financial. Their ad blurb claims that you can pay off your mortgage in 1/2 the time you would normally. The way my dad was explaining it to me, it’s by using a line of credit that you pay back by depositing every paycheck you get, then you use this line of credit to pay off your mortagage and other bills. I could not understand how this could be beneficial. How is the interest paid off? Why couldn’t this be done without using a line of credit?
Reading up on MMAs has been an interesting challenge. There don’t seem to be many unbiased descriptions out there. My Google-fu keeps turning up spam blogs declaring how awesome this incredible deal is and how it can work for YOU. :dubious:
Does anyone know about these accounts? Are they a scam? Did I misunderstand my father’s explanation? Is United First Financial a reputable company? How do I go about researching this?
It’s been more than a decade since I lived in my parents’ home. They’re adults (approaching 65, in fact), and theoretically they can take care of themselves. But they have a past history of trying out all kinds of MLMs on the theory that they’re a magic ticket out of debt, and I’m really really afraid that they’re getting swindled here.
Similar things are fairly common in Australia. From what I know of people using them, you do save huge amounts of interest if you are the kind of person who sticks to a budget. They work by minimising your outstanding balance so that interest is reduced.
Everything about this screams SCAM to me. I’ve been searching all over and consulting some friends of mine who are in the (legitimate) financial services industry, and none of us can figure out exactly what this product is or precisely how it works.
The best we can figure is:
They want you to buy some really expensive software.
It’s something like a HELOC, with a second lien position on your home.
Something extremely vague happens with your paycheck that bears a disturbing resemblance to payday loan scams.
I did find one hilariously sad thread on another board where two pitchmen (probably socks) attempt to argue the benefit of this program.
Number one rule of not being scammed on financial products: If a mere mortal can’t do the math, then it will not make you money.
And for this thing, even a University Professor can’t do it! That must be some complicated interest calculations. This must be some kind of home equity by way of Fermat’s last theorem.
OK, sorry for all the snark. It’s clearly fishy, but for all we know your parents plan may not be as blatantly outrageous as the stuff I’ve found so far. What disturbs me, though, is I still haven’t found a concise, direct explanation of how the thing works.
If your parents can’t provide that either, hopefully you can convince them not to invest in a plan they don’t understand.
Sorry, I assumed that United First Financial was a lending body like The Bank of Queensland one of the many actual financiers who facilitate these loans in Australia. Most lenders offer mortgage offset accounts as a method of repayment. No software is involved.
Wading through all of the bullshit on Google is pretty tough. Seems the promoters of this product are pretty good in getting themselves high search ratings.
Anyway, this essentially boils down to “If it sounds too good to be true…”
Another page listed eight problems with this program.
It´s a Multi-Level program
Your client is charged $3,500 to get into the program.
You can make more $$ by recruiting others to get their clients into the program
On the video presentation, the 200K mortgage at 1200 monthly was paid, and an additional $1K monthly to reduce the years to payoff to 10.5 or so.
The client can do exactly the same on their own without the cheesy little computer program, which is really just equal to an ammo program. They can get that for free.
Had they NOT gotten into the MMA program, and applied the $3,500 MMA fee to the down payment, it would shave another year off thir mortgage or so!
They tout that once your mortgage is paid off, you´ll have a million in the bank if you keep putting the same amount in an investment vehicle! DUH, no kidding! You can do it on your own, and MMA has limited followup–if any after the $3,500 check is cashed!
The video basically alludes to the “new method of mortgage reduction”, or some other nonsensical remark. All it is is basic math, prepayments and the joy of compounding!
You don’t need a degree in mathematics to know that if you pay more on your mortgage every month it will be paid off quicker. Most folks just don’t have the discipline to do that. But it shouldn’t cost you $3K + to learn that.
I doubt your folks want to get into something like this and then start selling it to their friends to make back the money they paid to enter the program in the first place.
Do they work by using your Mortgage as a cash account? All of your pay goes in and then you can withdraw as required for bills and spending. Because a lot of the time there is excess money in the mortgage account, there is significantly less interest, so your debt gets paid a lot quicker.
My fear is that you are giving more entities rights to the collateral (the house), rather than just having the mortgage company with a vested interest in the property.
If anything were to go wrong, you could face a nightmare scenario: e.g., if youn run into employment issues, and pay is delayed, or you become unemployed you can work with the mortgage company or just worry about them (and they want you to keep the house). BUT…Having different hands in the pot (collateral) means that as soon as something goes sour, one entity might move RIGHT FRIGGIN NOW to get your house, whereas a more legit mortgage company might be easier to deal with and make arrangements. You might have incredible penalties, liens, etc.
And who knows, maybe in bankruptcy, you could keep your home under traditional financing scenarios, but with more complex ones, you might have loans that complicate things and put your life’s work at risk.
There are no “magic” programs to help you save money on your mortgage. It’s pretty straight forward. Get the lowest fixed rate you can find and pay it off in the shortest amount of time you can.
“But the payments are too high!” Well, that’s the cost of saving money on your mortgage. You don’t want big payments then you have to compromise and pay more interest in the long run.
Get smaller payments by getting a lower interest rate with a variable loan, get screwed when the rates jump on you.
Get smaller payments by stretching it out over a longer term, pay more interest in the long run.
Get an interest only loan, make payments for eternity.
They may indeed be able to satisfy their primary mortgage more quickly by using a HELOC, but that will just leave them with a secondary mortgage for the same amount (or more) of money, at a higher interest rate.
You cannot switch from a vehicle with a lower interest rate to a vehicle with a higher interest rate, pay the same each month, and come out ahead. It. doesn't. make. sense. And if you CAN afford to pay more per month then you should add it to your PRIMARY mortgage (because it has the lower interest rate) with a note that says, “$x added as additional principal payment.”
Your parents have been misled at the least and swindled at the worst. I’d call my state’s attorney general and file a complaint.
Exactly. When I bought our house I knew in my head what I could afford. I had $40K for a down payment and found a house for $190K. I needed a loan for $150K. The lender ran my data and then told me “great news, we can get you a loan of up to $300K! Are you sure you don’t want to look at other houses? You can afford so much more!”
If I would have took her up on the deal and bought a $300K+ house I can tell you that today I would be totally screwed.
I agree with everyone that this is, at best, a bad deal. But I just have to add: There is no software in the world that can change the terms of your loan and mortgage. Those documents dictate how much interest you will pay. The variable is speed of payment and you can speed up payments for free all by yourself.
