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Promoters of the mortgage accelerator, or money merge account, sometimes post here on the Zillow Discussion Board. If you are researching this mortgage program, do yourself a favor and click on the 2 links here. Read both, completely, before making a decision to use this mortgage.
MMA Marketing Tactics
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You went with my suggestions! Awesome, inform the consumer!
Yes, I did! I got sick reading the marketing tactics ( above ). If someone could pay a 25 year loan off in 8.3 years with no increase in payment, as claimed ( 25 to 8.3 years ), then all 3,000 plus lenders/brokers here would only quote that loan. Since we dont, that has to say something.
Unique.. the Facts you are linking arent the mortgage accelerator.....those are for the Heloc with software program which everyone knows isn't a great idea.
Yaeger same concept just no HELOC. I still offer the program it's called the ultimate account.
same concept isnt the same thing. I know about the first mortgage heloc with debit card access and direct deposit. Thats a completely different concept than a HELOC with software. Completely.
The difference is the Software. It only works with discipline and extra cash!
I pulled the post below from the "way back machine" (any Peabody fans here?). The "HOA Simulator" was one of those "and here's your savings" calculators for a mortgage accelerator program. The second example was, I believe, generated using a calculator from Bloomberg, and the numbers were modeled on the observation that the accelerator essentially forced a minimum additional payment into the program.
If you're pushing an accelerator program, and the associated fees, and saying that "it is different", then here is your chance. Show me that the second example (i.e., additional payments on a fixed mortgage without the "special software") is bogus, and the accelerator program is better.
yaegermike, when I posted Mortgage Accelerator Facts today, with the MMA links, it was in response to FLMortgagePro's thread called "Mortgage Accelerator Information" and his post before that called " Mortgage Accelerator Programs - Money Merge - Australian Mortgage - Equity Building Programs ". You can see how he mixes the systems himself by the name of the postings.
My point is that anyone claiming to have a loan that allows for reducing a mortgage by 10-22 years without any increase in payment is lying, regardless of what name you put on it.
If you think you know of a system that allows for even a 5 year reduction with no increase in payment, please describe the system here. I am very interested in seeing that info. I heard a very wise man once say, " There are No Magic Loans ", OK OK, the wise man was actually AA but still true.
From April '05...
Okay, this post is getting to me. I ran the numbers using Painless' example, and here's the result. One mod had to be made, as the simulator only allows a minimum of 10% savings, so Painless' $500 got bumped to $900.Example: $400K home, 20% down, $320K financed @ 5.75% fixed over 30 years with $1,870 monthly PI payment. $9K monthly takehome ($4,500 x 2), and 10% ($900) cash after expenses.Running the numbers on the HOA simulator, using a straight 7.25%, generated: Payoff : 16 years Interest Paid : $216KI then used a mortgage calculator, and rolled in additional monthly principal payment of $900 to model the approach used by the HOA. This generated: Payoff : 14 years Interest Paid : $147.5KI am neither a mortgage professional nor a financial planner, and the tools I used may not be 100% accurate. However, the "reasonable person" approach indicates that the HOA is nothing special. Someone just took an old idea (make extra payments against principal), added a teaser (but, since it's a HELOC, you can still easily get the money back if you need it), spiffed it up with some smoke-and-mirrors (interest savings through the managed cycling of funds through the HELOC), and then targeted a market that is looking for a magic bullet.Running the numbers only took about 5 minutes - it took a lot longer to write the results down and repost them to this site.
Notes on above...
The 7.25% was to approximate a HELOC rate, which is what the accelerator program did (i.e., use a HELOC to replace the 1st, and then use software to "time" when to put money in).
The second example used the straight 5.57% and rolled it out, with additional payments on principal to match the effect of the accelerator program.
Bottom Line: Where do you want your "extra cash", in the house or in the bank?
Historic Note: This was 3+ years ago. Not sure that some wouldn't argue "neither" right about now.
socal_eng, I got the same result as you did, using the thing twice. Both times I came out better just paying additional principal on a 30 yr fxd.
For what it is worth, the "reducing a mortgage by 10-22 years without any increase in payment" is "misleading", not "lying" - and it is the type of game that tarnishes the image of the industry.
The "payment" isn't increased, only "the amount paid". I've seen these games, and have complained on this board about things like the use of "fixed" to refer to the first 1-3 years of an ARM (given that "fixed" is an industry term referring to a much different product than an ARM).
As with everything else, it is incumbent on the consumer to do some research and understand the basics...not that I wouldn't appreciate less obfuscation on the part of the mortgage industry.
Question for you, sense you are outside the industry. Do you see an advantage of tying up a large chunk of your income into your home...compared to saving that amount?
Short Answer: It depends on the situation.
Long Answer: As with everything, that depends on the circumstances and the individual. Personally, I would like to eventually have my house, free-and-clear. That means that I will accept having a significant amount of my assets in a non-liquid state.
As to tying up income (separate from assets), it would depend on the state of my current assets. I already have a significant part of my income going into my house as I am in year 5 on a 30yr note. I also have funds going into 401Ks and other assets. If I come across additional funds that I can designate, I would definitely consider putting them into additional principal payments against the 30yr note, but I also want to be free to consider other options.
In your original question, you juxtapose "tying up a large chunk of your income" against "saving that amount". In either case, the money is "saved" (temporarily suspending discussions about declining house values), it's just a matter of liquidity. The question should be phrased "how should you best allocate your income to meet your short and long term financial goals." The crux is, too many have neither...they're "just paying bills".
My short term goals are to continue building a liquid reserve, so I am unlikely to make a long term commitment to extra principal payments at this time. Ask me again in a few years, or if I run into an unexpected income source, and my answer may change.
My long term goal is to minimize/eliminate my expenses, so that I can be reckless and irresponsible in my retirement years. This means getting rid of the house payment. To that end, getting additional funds against the principal is definitely part of my long term plan. Alternatively, I could also sell the house and relocate, but that is currently not part of the plan. So, once some of my other shorter term objectives are met, I might well consider putting more money against the principal (already doing some, but would increase).
Anyway, apologies for the protracted post, but I just don't see your original question as something that can be answered in a multiple choice manner.
SoCal-I appreciate what you have written and agree with you on so many levels.
My long term goal is to minimize/eliminate my expenses, so that I can be reckless and irresponsible in my retirement years. I 2nd that goal!
Good Luck to you! :)
Socal, I appreciate your comments. When someone makes the statement " reduce by 10 years without any increase in payment ", there has to be an existing payment for the basis. If it is a 30 year loan payment, it is a lie. The residual income being applied to the loan balance is the extra payment. If you have a 30 year loan, switch it to the MMA, keep making the same payment as before, you will not reduce your loan by 10 years. You will have to make an additional payment to achieve that.
You stated the "payment" isn't increased, only "the amount paid". Since these mortgages apply a paycheck, then expenses backed out, the difference left in and applied becomes the payment, which includes additional money. I am glad you understand the loan but most people do not. I think you are too generous saying it is misleading. JMHO.
I agree with your comments, but used the "misleading" and "payment -v- paid" comments just to illustrate the extent to which an individual can go before they cross the line from "misleading" to "lying". I see it too often, and not just in the mortgage industry.
Thanks...I appreciate and understand that statement. It helps me take a step back and realize there is not a simple sale.....if that makes sense.
I need to understand the customer.
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