Money Merge Accounts: Zero Risk?

by Florida's #1 Mortgage Planner on November 20, 2008

One of the biggest points sellers of Money Merge Accounts is that the software and program carries Zero Risk to you.  That is a very misleading statement, if not outright false and here’s why…

Money Merge Account:  Zero Risk? - Home equity lost to fire.  The home on the left was lost obviously to a fire.  Was it rebuilt?  Possibly, but not without loss of equity as the family paid for extra living expenses during the rebuilding process, not to mention the deductible if it was insured.  If they didn’t have the extra money, chances are the home was lost to foreclosure even if they didn’t carry a mortgage and lost it all.  If they didn’t have insurance, they lost it all.

Money Merge Account:  Zero Risk? - Home equity lost to hurricane.The home on the right was lost was lost due to a hurricane.  Once again, even if it was rebuilt and the family was insured, they were paying extra living costs while it was being rebuilt, and they may have also faced foreclosure due to inability to cover the extra costs, losing all that home equity.

Money Merge Account:  Zero Risk?  Home equity lost to flood.

The home on the left also had an obvious fate, falling prey to flood waters.  This scenario results in much of the same ways, except flooding carries extra risk for homes valued over $250,000.  The reason for that is that is the cap on coverage, which means any extra equity is lost no matter what and the homeowner carries the extra burden of coming up with the extra cash to rebuild, so it is a double whammy of sorts.  Also, if you still carry the mortgage, the insurance will send a check to the mortgage company, which gladly accepts that check as an "extra principal payment".  Of course, if there are "leftovers", you will get a check whenever the mortgage company gets around to it.

Now, the next house may or may not have been destroyed by that tornado right behind it, but windstorm insurance is not often carriedMoney Merge Account:  Zero Risk? - Home equity lost to tornado. nationwide.  So, if your home gets destroyed by a tornado, especially in an area where they are not commonplace, you may not even be insured and will lose everything.  Once again, even for those whom are insured, you may yet lose everything if you are not adequately prepared for the extra costs, and everyone certainly loses at least some equity.

Money Merge Account:  Zero Risk? - Home equity lost to an earthquake.

The house to the left here met an unnoticeable fate, an earthquake.  Once again, many insurance carriers would call qualify this as an "act of God" and leave the homeowner with absolutely nothing.  The other problem with homes that remain standing is you have the added cost of tearing down the home, not just the cleanup expenses and rebuilding expenses, so those costs may very well exceed what your insurance reimburses you for.  Again, no matter what, you will lose some equity and may end up losing all of it.

The house to the right met what is probably the least expectedMoney Merge Account:  Zero Risk? - Home equity lost to imminent domain. demise.  As you can see, it was not destroyed.  In fact, it wasn’t even damaged.  Instead, this home was lost to the power of "Imminent Domain", the legal way for the government to take your home with adequate cause, such as building a railroad track or highway.  In these cases, the homeowner may or may not receive the full value of their home, so equity could easily be lost in these cases and the homeowner cannot even insure themselves against this one.  The good thing is it doesn’t happen very often, but it does happen.

The point is, and one that I have never seen brought up by any seller of mortgage acceleration products, nay even many financial planners for that matter, is that home equity carries risk.  Compounding the problem is the fact that home equity has no rate of return and can only be lost, a point many will argue even in this current real estate environment.  Facts are facts, period.  That means you need to find someone who will present all of the facts and offer all of the varying equity management strategies in order to find the best solution for your specific needs.  That is a very difficult task in this day and age as even "mortgage planners" are struggling to survive and will sell you whatever they can, even if it is not necessarily in your best interests. 

{ 1 comment… read it below or add one }

David Shafer January 27, 2009 at 5:10 pm

Nicely done. That is the best presentation of this subject I have seen yet. Will bookmark it for use with clients as the need comes up!

Leave a Comment