Mortgage Programs

[dreamweaver]

I feel sorry for all the persons who have so little faith in their own lenders. My lender (three mortgages, and about 6 years) is easy to call and ask questions. Washington Mutual has sent me amoritization schedules. They have given me real information about how long I would have to own my home to cover the fees incured with refinancing and start benefiting from a lower interest rate. They have told me in laymans terms how interest works and simple ways to avoid it. And they do it because I am a customer and they want to keep it that way. So....I have gotten three mortgages from them, and I send them my money. And I will lend from them again.

You pay your lender. So use them to answer some of these questions.

[willowstudios]

I'm about half way through the book 'How to Own Your Home Years Sooner' - it's all about this topic. So far I'm sold on it because it explains in detail how it all works.

One thing I just learned was that any interest saved (whatever your 1st mortgage is) is interest you don't pay taxes on. Normally under the traditional way of making extra payments you wouldn't really "earn" tons of interest off your mortgage per year. However, with the Speed Equity system you "earn" tons of interest off your mortgage per year.

So, in short...from what I understand - you would need to pay taxes on interest earned from other investments. But, since you are SAVING the interest it's tax free..the more you send to principle and "earn" (save) it doesn't matter...you don't have to pay taxes and also its a risk free investment (ok, that is relative to what you personally believe is risky - I see my mortgage "investing" as very low risk)

This is really only one of the benefits that I read about, but it stood out to me as important. I wish someone else would read this book too!

[Ima saver]

Sorry, but I would stay away from it. The one way to own your home years sooner, is to pay extra on the principal every month.

[willowstudios]

In all honesty, I'm doing a lot of research on the "money merge accounts" that are out there and it doesn't really sway me when someone gives an opinion without any concrete facts behind it. I'm sharing the wealth of my research because I think it might be useful information for people that want to "save".

That is what this forum is all about right? Saving? If there are options for savings tons of money of your 30 year mortgage it's worth exploring. That's why I'm participating here...to share learned knowledge.

I'd really like to hear from someone else who's spent time actually using a money merge account or has done lots of research. Again, so far from what I've learned it's much more beneficial to do this system than to just pay extra on the mortgage. It all has to do with using the banks money interest free (or very close to it) to pay down your 1st mortgage. It's complicated on how it works, but the numbers don't lie...I'm probably going to do it once my credit scores jump past 750...which is within a few months.

[skydivingchic]

I’ve watched the video done by the United First guy. All they are doing is applying extra principle to the balance of the primary mortgage. Period. No voo doo. No magic.

Willow – can you agree that if you were to take the exact amounts of money that the program suggests at the time the program suggests and apply those amounts to your mortgage, you would end up with the same results?

There is no magic here. In the first example the guy gives, the couple has $1000 of “extra” income every month. The program always keeps some balance owed on the ALOC. So let’s say for example that the program keeps at least $2000 on the ALOC at all times. Every month, because of the couple’s “extra” income, they pay off just under $1000 (some amount goes to interest) of the ALOC. So, if they originally take $5000 from the ALOC and apply it to their mortgage, in just over 3 months, the ALOC will be down to $2000 and the program tells them to take another chunk of money from the ALOC and apply it to the mortgage. With the exception of the first draw on the ALOC, all the other money they take from it and apply to their mortgage is simply their “extra” income plus any windfalls (tax returns, gift money, etc) that they pay toward the ALOC.

So I went to Bankrate and used their mortgage calculator. Taking the example of $200,000 mortgage at 6%, I added the 1 time extra payment of $5000 at the start of the loan and monthly extra payments of $1000 as per the guy's example. Voila – the loan is paid off in 10 years. Actually a bit faster than the program said, which was a bit over 11 years. The difference between the Bankrate calculator and the “magic” program is the interest paid to the ALOC and the cost of the program! As you can see, it is not "much more beneficial to do this system than to just pay extra on the mortgage."

Doing it yourself is cheaper. Obviously you don’t have to pay United First the $3500 for the program. Also, you aren’t paying interest on the ALOC – something that in my opinion the guy completely glossed over. There is no magic “interest cancellation.” That is just a fancy phrase to make you think you are saving money. You’re not. You still have to pay interest on whatever the average daily balance is (or whatever the terms laid out by the bank say). The ALOC is not equivalent to "using the banks money interest free (or very close to it) to pay down your 1st mortgage."

Now, if you want to pay off your mortgage early and this program will give you the discipline to put that extra money toward your mortgage, then maybe this program is for you. Certainly spending $3500 for the program would be worth it if you are able to use it religiously and end up saving the tens (and possibly hundreds) of thousands of dollars of interest on your primary mortgage. But people need to understand that this program does absolutely NOTHING you can't do on your own (and cheaper for that matter). I also see a huge potential for abuse of the ALOC, so that certainly needs to be considered.

[AmyKay]

I really appreciate all your thoughts! My understanding is that my KAP Financial guy would make some money off the closing costs. He then "sells" our account to GMAC, who is the actual lender. He said (of course that he doesn't make a lot of money off these, but will in the long run because of referrals. I don't see the banks offering this because they wouldn't make nearly as much money versus a traditional mortgage, right?

Is it true that the majority of folks in England and Australia buy homes this way? If yes, then maybe it's so new and radical, just new and radical to us? I, too, am exploring it, but not sold yet. But definitely excited!

[Ima saver]

Thanks for your thoughts, skydivingchic. I agree, I just took my extra money ( in my case a minimum of $1000) each month along with the regular payment and paid it on my land mortgage. My interest went down very quickly and I did not have to pay anybody any money.

[willowstudios]

I think there's a misconception that going with United Financial is the only way of doing this system. I've been using the online system at Speed Equity for free (I'm pretty sure it's the same as the $3500 version). There's a free login code when you get the book "How to Own Your Home Years Sooner" - you can get it on Amazon or it's cheaper on their site. After watching the United Financial video and listening to their Podcasts it's apparent these two systems are the same thing. It's just the Speed Equity only cost like $25 (the cost of the book). After the free first year they say it'll be a small fee. NO, I AM NOT AFFILIATE WITH THEM. I'm a homeowner who just refinanced and I came upon the concept of "money merge accounts" and just started researching this past month.

By the calculations from the Speed Equity software I'll save about $102,000 in interest and pay off my 30 year mortgage (which is brand new) in about 8 years. That's with my lifestyle staying the same - no extra mortgage payments. It's the discrectionary income that's knocking down the loan - you don't actually lose the income every month because you are taking a loan from your HELOC instead. So, even though you send extra money to your 1st mortgage that you normally wouldn't you really don't actually send them anything extra. You are re-borrowing they money from your HELOC until you get a paycheck...they you pay it off. So, it's like free money for your 1st mortgage every month. If I were to make extra principle payments WITHOUT the Speed Equity system the best I can do is save about $70,000 and pay off in about 15 years. Obviously, either I'm wrong...the Speed Equity is wrong or anyone saying doing it on your own is wrong. Someone is wrong and someone is right. My reason for going with Speed Equity is because they have free online seminars where I've been able to ask all the questions I want, they have the software available for only $25 (not $3500) and also have a paperback book all about the system.

Remember - this is very cool. -- OVER $10,000 in savings every year for 8 YEARS - TAX free! If you invest cash in the stock market and earn $10,000 you're going to pay lots of taxes on that money. Also, investing in anything other than your home mortgage is a risk. I've since come to realize that dumping money into your home loan to pay it off in 8 years and not 30 is pretty darn low risk.

I've spent all day playing with the software and I'm telling you from first hand experience that it's calculating more savings than with any other calculator I've tried online. Again, I'd really like for some math guru to actually try the software and not just say "you can do it without it". The software has every single bit of information (income, expenses, all debts, loans, interest rates and due dates etc etc), so it has a bunch of calculations that it does. As a matter of fact it takes like 25 seconds to recalculate through the web because of the data.

Why is it so hard to believe that this system works? I have no idea. I've spent lots of time looking for holes in the system and at this time I can not see any. It's a system for budgeting your money and leveraging one loan to pay off another. Simple. Can anyone do exactly the same thing on their own without software? Yes, probably if you want to. But, who CARES?! Do it. I personally don't have the time to fart around with Excel - $25 investment to get back $100,000 in savings? I'm sold.

This system just might be the coolest thing I've seen - where else can you save $100,000 without changing one single thing in your budget? You don't make extra payments on this system! It's just moving money around in the most effective way based on your individual circumstances. That's the key from what I can tell - it's customized to each household and is recalculated when there is a change....any change at all will give you charts and explanations. Personally, I think it's like a Quicken type thing...except it's actually geared towards allocating your resources in such a way that your money works for you DAILY. It's cool!

I'll post any new knowledge I get...still learning about the software.

Info about Speed Equity here. Link

The system works because it tricks homeowners into paying more towards their mortgage every month than the minimum payment. Most people just make their minimum payment every month. This is obviously pretty inefficient. The better method is to overpay.

[willowstudios]

That post does NOT tell the whole story. Whoever wrote that didn't talk about the other specifics that I've mentioned. Again, it's someone that hasn't actually USED the system slamming it.

This reminds me of people who slam a movie before it's even RELEASED! They have a pre-concieved notion, so that's a fact in their brain. However, the facts are the facts and there are people using this system.

I forgot to mention that on the Speed Equity site there is a forum with CURRENT users of the software. These people do exist and I'll be one of them shortly, I hope!

There's an NBC station that did a story on this topic - here:

YouTube - MMA Accelerated Mortgage Pay Off In 8 to 11years News Video

[kv968]

I'm not slamming the system because it will work and I'm sure it'll help some people. However it is no different than what the others have said... Take every bit of discretionary income you have and apply it to the principal each month and you'll get the same results. If not maybe a little better because you're not paying the interest on the ALOC during the month. Skydivingchic posted a good breakdown of that.

Originally Posted by willowstudios

It's just the Speed Equity only cost like $25 (the cost of the book). After the free first year they say it'll be a small fee.

Let us know what that "small fee" is when it kicks in.

[skydivingchic]

Yes, I see how the system can work if a homeowner follows the program. All I'm saying is that the "system" involves no magic. It simply applies additional principle to the mortgage. That additional principle is (indirectly) whatever amount of extra income you have every month minus interest paid to the ALOC plus a one-time larger payment upfront (also borrowed from the ALOC).

I'm not slamming the system - and in fact said that if it that is what it takes to get the consumer to put that extra toward his/her mortgage, great. But realize there is nothing really new or novel about it. Additional principle paid = less interest paid over time and less time until pay off.

Originally Posted by willowstudios

So, it's like free money for your 1st mortgage every month.

I would point out that it is NOT free money. It is money borrowed from the line of credit. That means you must pay it back plus interest, so that money is actually costing you.

[willowstudios]

I just went to the site and looked it up - after the first free year it'll be $173/yr. That means it'll cost a total of $1384 to use the system...ok, that's not great. But, it's better than $3500 up front - that's from the United Financial people.

Also, if you send your discretionary income without the HELOC it's not the same! The whole point of this system is to use the banks money for years and years to pay down your 1st mortgage at LESS than the interest rate of your 1st mortgage.

The HELOC is calculated daily, so you use the money and then pay it off with your income from paychecks. Over the life of you paying down the 1st mortgage it amounts to TONS of savings that you simply can not do without "borrowing" the money from a HELOC. I'm NOT an expert at this, but I quite honestly do understand the software even though it seems complicated at first. There are videos available when you log in that walk you through the setup process. I've finally inputed all my finances and what's great is I can re-calculate everything based on what I want to spend or don't. It's not like any other software that I've seen and I've tried all the major software out there (Quicken etc). There are tabs where you input everything and then there are charts and forecasts. You can change things to adapt when life changes - like you need $1000 for something out of the blue. If you put that in you can see all the changes that will occur. Yes, I realize that Excel can calculate things in whatever way it does - but, it CAN NOT do what this software does without some Math guru creating a spreadsheet. I have Quicken and it simply does not have any way to trigger and keep track. Maybe if someone spent the time to make an Excel spreadsheet to do all this stuff I would give it a try it, but i haven't seen any freeware out there! All I can say is you need to see it.

I highly suggest you guys spend $25 on the book if you're even remotely curious about the system - OR - sign up for the free Webinar from Speed Equity. Every question you have he'll answer - I'm not a financial guru. (I just pretend on tv)

Seriously, this is one of those circumstances where you need to experience something before you go around talking like you know. It's NOT as simple as just sending money back and forth - it's system that's all about triggering, borrowing and being diligent about not spending what you don't have..

I'm not doubting that simply making extra payments will reduce the length of your mortgage. However, all the research I've done for a whole month points to this system being far superior to just throwing money at random to your principle. That isn't as effective over time like this systems seems to be.

One last thing - who the heck said anything about magic? It's a stupid piece of software that does calculations that help pay off your mortgage in record time. Why is that so magical? It's like we're in middle school here? I'm trying to share information about saving money! This system is becoming the hot topic on forums all over the web, so you might want to Google it and not spend all your time focused on naysayers slamming it who haven't even used it!

[safari]

willowstudios, do you know what the interest rate on the HELOC is going to be? If you're going to borrow money from HELOC to pay down your first mortgage, it would only make sense if that interest is going to be lower than the interest on your first mortgage, which is usually not the case. This is the only thing about this program that I can't seem to understand.

[skydivingchic]

"Also, if you send your discretionary income without the HELOC it's not the same! The whole point of this system is to use the banks money for years and years to pay down your 1st mortgage at LESS than the interest rate of your 1st mortgage."

This statement makes no sense. By using your discretionary income without running it through a line of credit, you pay NO interest whatsoever (not to mention the money paid for the program and the money paid to set up the line of credit). Zero interest is certainly less than whatever interest you pay on the line of credit. So if you simply send in your discretionary income without using the line of credit, you would put more money toward the mortgage principle, and thus further accelerate the pay off.

I went back and reran the numbers for the example given in the presentation. $200,000 at 6%. Four completely seperate online calculators agree that if you put $1000 extra per month toward that mortgage, the pay off time is 10 years 2 months. With the one time extra at the beginning of the loan of $5000, it goes down to 10 years. The software presented gave a payoff time of just over 11 years. Granted, a good portion of that one year's difference is due to the $3500 for United's software. But as you said Speed Equity's software will be a bit less than half that and the rest of the pay off time difference is due to the interest you are paying on the line of credit.

Aren't there some banks that do something similar to this where all your financial assets are tied into one account: your HELOC. You have no checking or savings accounts, per se. All your income goes directly toward paying down your HELOC. If you need to buy anything, you borrow from your HELOC.

So the advantage is you never have "idle" savings. Your money is always "working for you" by keeping your principal balance as low as possible. The disadvantage is that it can be tempting for some people to tap further into their HELOC for frivolous spending.

[willowstudios]

The HELOC will have a higher rate, but since its calculated daily it's not the same thing as the 1st mortgage. The reason you use a HELOC is because it's access to money whenever you need it - when you get a paycheck you're paying it back. When you calculate the interest rates the HELOC will be much less interest. What I've read is that it will be in the 1-2% range depending on your expenses. That's the key - don't spend what you don't have. If you follow a budget and always put your surplus into the HELOC you're all set. But, because life throws curve balls you're suppose to factor in an emergency fund. Some people use cash in a savings account, but since you have a HELOC it's just like having a savings per say. You just tap it when you need it. The software will tell you what you just borrowed and alert you that you just went into the red...so, you can begin to start re-budgeting your money. It automatically with re-calculate to get you back to EXACTLY where you were...all you have to do is re-adjust expenses and savings again.

Yes, it seems like using a regular Excel speadsheet will do the same thing. But, I can assure you after seeing the software and following the directions you'd see how it's not the same.

The reason that a HELOC is different from just sending in your extra money when you have it is because you're borrowing the money! You have to wrap your head around this - it takes a month or so to get into the system of using it. How can using the banks money at very low rates not register with you? All of your money is being used to SAVE interest in the 6% range (depending on your 1st mortgage). How can you not see the advantage of getting on a system that costs relative to what you get back PEANUTS. I'm serious - the more you educate yourself about this thing the better it looks.

Believe me - you need to read the book - I'm 75% done with it. It's all in there. Otherwise, take 1 hour of your life and join the free Webinar at Speed Equity. I'm planning on attending the one tomorrow right.

[cptacek]

Willow, I understand completely how it is supposed to work...I guess I'm one of those math/excel gurus you keep talking about. But I am afraid for you. I guess my question is, if someone offered you a credit card with a $290,000 credit limit (or whatever 90% of your home loan is), would you buy that house with the credit card, send every dime of your paycheck to this credit card every time you are paid and then use that same credit card to pay normal expenses? It seems dangerous to me, and the banks are betting that "life" will happen to a lot of people and they will keep their balance at a very high level, always vowing to return to their budget "next month." Meanwhile, you are borrowing money at a higher rate with the HELOC and paying $173 a year for the privilege of doing that.

[rooskers]

willowstudios,

I have run all the calculations using paper, pencil and my TI-89 calc and sent the paper into a mathematics professor ( he was my advisor and he has a doctorates) at the University I attended to get my bachelors degree to check my work. This system does not pay off your mortgage in 8 - 11 years through any means of manipulating interest rates and average daily balances from you heloc and fixed loan. Granted some of the manipulations will save you money because interest even if it is higher is calculated differently on a heloc but the savings from that is paltry. The majority of savings comes from extra payments (if you want to call this discretionary income, extra income I don't care it is money put in addition towards your regular monthly payment).
My only thing is stop telling people we are not looking at the whole picture and the book will explain everything. I know smoking is bad for me but I don't have to smoke find this out. I have looked at the whole picture. You are right that in this system you can make extra payments through discretionary income (LOL that term makes me laugh) and if for some reason you need a $1000 dollars or some other amount you have access to it unlike a direct principal payment to your loan. However this is exactly why the first thing everyone tells you on this board is to have a 3 - 6 month emergency savings for exactly this purpose. If you get into a rut lose your job and you keep relying on the HELOC you will not be paying off your mortgage in 8 - 11 years but actioning off a foreclosure in 6 months or less.
Now all that said I agree with others if you think this will help you by all means do it. Any system that works for you is a good system. However we are here to tell you this has a great deal of risk involved. You seem pretty adimate about the program so go for it and in five years come back here and tell us how the system worked for you.

[Ima saver]

I am so glad that I do not understand computers or soft ware and just do things the old fashioned way. That is what worked for me and I have been mortgage free for 30 years!