Mortgage Programs

[cptacek]

It's really hard to explain, but it's a lot of facts and figures.

I consider myself intelligent and very curious.

This is what worries me. An intelligent person should be able to understand the system that they are going to use to pay off their house. Wait, EVERYONE should understand the system they are going to use to pay off their house. Isn't this why the sub-prime and ARM crisis is happening? People didn't understand what they were getting in to, but instead trusted the other guy, the guy trying to make money off of them, to be honest and look out for the consumer's interest? That just doesn't happen, my friend. If there is money to be made from suckers, it will be made. I just choose not to be one of those suckers.

[cptacek]

Ok, I just went and looked at the kapfinancial recap of it. I'll concede that what they say is true...IFF (that is, if and only if) your spending habits stay the same.

While watching, one thing kept popping into my mind. What is in it for them? You do know that their goal is not "let's help the home owner pay off their house. It would be great for us if they did not pay us interest." right? So, what is in it for them? Here's what I came up with...they are counting on you spending MORE than you do now, so the principal balance never truly goes down. There is nothing that keeps you from spending more than what you put in that paycheck, so there is a real possibility that you will actually build your mortgage back up to that 90% home equity level.

Also, it never said, but it sounded like the loan would be variable rate. Mortgage rates are still at historic lows, but if this is variable rate, then wow that mortgage could get expensive.

You could do the same thing with a credit card if you had a high enough credit limit. But would you? Would you charge 90% of your house to your credit card, one with a variable rate, and every paycheck pay ALL of your money to that credit card, and then use that credit card for your expenses for the month? Hey, at least if you did that, you would get points for it. But the variable rate and the unlimited cap on spending (ok, a cap of 90% of the value of the home) scares the bejeezus out of me.

[rooskers]

While watching, one thing kept popping into my mind. What is in it for them?

cptacek this is the exact reason in my previous post I asked how much is the interest rate and how much are they going to charge you to refinance from the current loan into the 90% one. Of course if the person doesn't like it how much are they going to charge to get back to a regular fixed rate loan. By the way if you run the numbers which I have you will not be saving huge amounts of money from the manipulation of your average daily balance in the home equity loan. Instead most of the savings will come from you supposedly not using your whole paycheck that month and the extra going to principal. Many people with that much spending power will get themselves into a lot of trouble. I know lots of people on this board will tell me they wouldn't but frankly not many people are like the ones on this board. This is why the average daily balance on credit cards in the united states is huge. Now just imagine instead of having that $5000 dollar credit card limit you had that $290,000 limit.

[cptacek]

Just to clarify, I agree with you rooskers, and there would be no way in hell that I would do this.

[FrugalFish]

I agree with everyone who would not get involved with this. Every time I see some amazing program like this, I think of that line from The Princess Bride- something to the effect of 'life is pain and anyone who says differently is either lying or selling something.'

When you borrow a dollar, you have to pay back a dollar plus the interest it accrues as the months go by. If you pay an extra dollar on your mortgage principal this month, it's 1 dollar you'll never accrue interest on again. Pay $500 and it's $500 that will never accrue interest again. There's no magic pill here, just simple facts. The fact that the program is made to be confusing should set off red flags. I do see where someone with extreme discipline could save a couple of bucks with the average daily balance computation (didn't they say you will save about what you spend in software for the program?), but I also see this as another way to get behind for the not-as-well disciplined.

[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