I had been going back and forth about how to present this part in the series and decided to make make it more than just one. The reasoning is that I want you to understand how these programs work and how you can easily do it yourself if you choose to enter one of these programs.
Money Merge Accounts are just software in and of themselves, but for the purpose of comparison, we will assume you have the HELOC in place so the software can work. It is important to note that when looking to purchase a Money Merge Account (and some other programs), you still need to purchase an appropriate HELOC (ALOC) which may come at additional cost.
The entire basis of using a HELOC to accelerate the mortgage payoff is surrounded on the fact HELOC interest is calculated on "average daily balance" and not the monthly balance as is your primary mortgage. By using the HELOC like a checking account get reduced balances every deposit and increased balances when you pay your bills. So, if you can time your deposits and withdrawals, you can minimize the "average daily balance", thereby minimizing your interest accrued.
Make no mistake about it though. Your primary, and vast majority, of "savings" is derived by the use of discretionary income to pay off your mortgage. You also do not need expensive software to take advantage of these types of programs, certainly not for $3,500.
One thing I will point out in regards to the United 1st Financial Money Merge Account presentation is about how the program is presented. It "assumes" that you deposit your income and pay expenses in a way that simple addition and subtraction equals the "average daily balance", when in fact it most likely does not. That means that the presentation, in effort to simplify the explanation of how the program works, basically shows incorrect numbers, numbers which you cannot truly expect to attain.
This is what I will show in the next post as I want you to fully understand what is happening and how these work. In the meantime, let’s look at what the software will do for you.
The software does not move money around for you, you still have to do that, so you will need to be disciplined to act upon what it tells you. After you input deposits and withdrawals, the program calculates looking forward to determine how much and when you should make an extra principal payment on your primary mortgage from your HELOC. That extra payment is derived from a some of interest savings, but mostly ALL of your discretionary income.
So, to recap the basics, mortgage acceleration programs use a HELOC like a checking account to minimize interest expenses while using discretionary income to pay off your primary mortgage. Some use software to help accomplish this, but the savings derived from the use of software versus doing it on your own is not significantly different, certainly not enough to justify a $3,500 price tag.
In the next post, I will use tables to show the UFF presentation and how they calculate monthly interest and "average daily balance" versus what a typical American’s account will really look like.
No related posts.
Related posts brought to you by Yet Another Related Posts Plugin.
