This one is new to me…

[Next in Line]

I’m sure most on this board have heard of “rapid mortgage payment plans”. These are usually bi-monthly payments – they generally same 5+/- years of time (and interest payments). I recently came in came across one the purports to allow for a mortgage pay-off in a soon as 12 – to 15 years using a HELOC as a primary checking account. All expenses (including mortgage) are paid out of this HELOC and your income is regularly deposited to pay down the HELOC. There’s some complicated software that signals you to make periodic additional payments to principal. Has anyone else heard of this? Tried this? Does it work? Legal? What are the shortfalls in this approach? Given peoples debt levels this – on the surface – seems like a good option for those with some with equity ( a real equity builder loan). I am considering this myself – any input is greatly appreciated.

[lindismith]

We’re all pretty fiscally conservative on this board, so I would guess most of us have actually not heard of this type of loan.

If the loan comes with a software program, I’d say it’s pretty complicated, and buyer beware!

We occasionally have some mortgage brokers on this board. They disappear pretty fast though when we start asking for stories from the ‘good ole days’ (last year). But, maybe one will chime in and tell you the truth about this type of loan.

[Anonymous]

HELOC’s to Money Merge Accounts

The proposal of rapid paydown of mortgage principal makes alot of sense, just like on-line bill pays… move that “mortgage banking interest float” into YOUR “home equity pocket” as fast as possible!

Their consumer budgeting software system supposedly was tested for two years by 400 “happy comsumers” in the Salt Lake City area… Front load fee of $3500 for membership and on-line serving seems high for homeowners to pay.

I am checking thru to “the founders” for actual/local users. I am an experienced Realtor, Loan Officer and Investor with skepticism. Please keep me posted. [email protected]

[svferris]

A realtor mentioned this option to me when I was considering buying a house a couple years ago. Here is a site that has more information:

http://www.cmgfs.com/partner/#

I think the idea behind it is that your money normally sits in your checking account earning little or no interest in preparation for paying upcoming bills. Instead, you have your direct deposit go into a checking account that is tied to your mortgage payment. As the money sits in there, it accrues a decent interest rate, which helps to automatically pay down the mortgage.

This will only really work for people who have more money coming into the account than leaving it. A direct deposit automatically pays down the principal, but should you need to then pay a bunch of bills, it’s the equivalent of taking out a HELOC.

Seems like an interesting idea and I’d love to hear from anybody that has actually looked into or had one of these.

[no_such_reality]

It’s shell game with a little bit of arbitrage.

Basically, the only way to pay off a 30 year loan in 15 years is to make 40% larger payments.

There scenario requires two basic things, over 20% equity in the home and over 10% savings rate.

I think that rules out many.

[(former)FormerSanDiegan]

It’s really doesn’t have to be this complicated. They are taking a simple arbitrage and making it seem complicated.

A simpler system to pay off debt sooner:

1. Budget an additional amount (e.g. 5 -10% more) each month towards your debts.
2. Look at all your debts and apply this excess payment to the highest rate debts first.
3. (optional) Keep your checking account near zero, with the balance in money market, ING, or HSBC accounts earning 4-5-5% (as opposed to checking’s 2-3%).

Check out the book “Downsize Your Debt,” by Andrew Feinberg. I read this over a decade ago. The ideas seem obvious to me now, but it certainly helped me back then.

[Next in Line]

That’s exactly the system. I’d love to know if it works. It seems logical that (and someone maybe no_such_reality) stated that you need to spend less than you earn at least a roughly a 10% savings rate. A little discipline would go a long with this as well. I like the rational skepticism on this board and figured someone could tease out the BS.

[kicksavedave]

Or you could just… set a strict monthly budget, stick to it, and send all your excess to the mortgage company with each paycheck… how would this be any different?

It seems some people need to have handcuffs on to save money. Like my wife, who prefers to let the IRS sit on her money and give her zero interest, so she can get a nice fat return in April. I ask her “Why not you keep the money each month, do something productive with it, and turn April 14th into a non event?” She says “I’d just spend it on something”

??? huh?

Anyway, how is sending all your excess to the lender any different than depositing your whole paycheck, and taking back from them what you need each month? I’d rather have the control myself.

[Next in Line]

kicksavedave,

You are correct on all points. In reviewing the responses on this board I realize that I might have 2 distinct questions. The first is does this concept of the Money Merge (Using a HELOC as your checking account)work or is it a gimmick. Second is has anyone used one and from what companies (I’d like to explore a known entity rather than and unknown? Thanks.

[DCRogers]

I’d be nervous giving most people a direct link between a HELOC and their primary checking account… good intentions aside, it would make it too easy to avoid normal financial crunch-times (the ones that make us perform the needed minor adjustments to our spending habits) and instead cover consumption with a loan.

[sdcellar]

Could be my myopic perspective, but I don’t see how using a HELOC as a checking account could provide you any benefit whatsoever. HELOCs take your money, most checking accounts earn you at least a little money.

The only way this would seem to make sense was if you had a HELOC already, then yes, it makes sense to try to pay it down as quickly as possible (all the while not really making a dent in your first mortgage). When it’s paid off, close it.

So, Next in Line, is the gist of this thing that you obtain a HELOC to get it going? If so, then I would consider it a bad idea.

[kaycee]

I think this is a facinating concept. But I agree with others that the hard part would be not “respending” the equity you’ve already paid down. However, I love the concept on paper. My checking account earns about a 1-2% interest rate. (1.56% last month) On that interest I pay about 33% to Uncle Sam and another 6% to Maryland. (Where I don’t even live, but my husband works). So what is my total take 3/4% ? Maybe? I’d much rather save between 6-7% on that money. But this wouldn’t work unless you are incredibly disciplined.

[an]

I agree, this program is probably designed for the people who are very disciplined. I mean, you have to be disciplined to try and pay off your mortgage early, right? So this definitely is very interesting program if it works.

[PerryChase]

I too can’t understand how getting a HELOC can save money unless you already have one.

[no_such_reality]

PC, it doesn’t. If you have a 10% savings rate, redirect that to paying off the home without an HELOC, you actually pay it off faster.

I know they are applying your savings to the loan for one simple reason, if you change the rate of savings on their simulator, the payment shortens. Shortens dramatically. If you change the expenses so there is little savings, it errors and takes 29.7 years.

i.e. If you have a $400,000 loan on the simulator with $120K income and 10% savings rate, you can pay the loan off in 17.2years. Of course, if you just apply that $1000/month “savings” to the loan, you’d actually pay it off in 14 years 10 months. If you double your savings rate to 20%, then you could pay off in 10.9 years. If you actually applied $2000 surplus to loan, you’d pay off in 10.1 years.

If you go in adjust the expenses so there’s less excess cash, say only $300/month, the payoff results in 29.5 years (6 months early), however if you’d just pay $100/month more on a $400K loan, you would actually pay it off in 27 years.

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