Comment from Cliff Smith
Time: September 11, 2007, 7:43 pm

It is truly amazing to me how the truth can be twisted to make it look like it is acceptable for a homeowner to pay 120% interest on a 30 year mortgage. That is the amount of interest that will be paid on a typical $2000,000, 30 year mortgage. After 30 years, that $200,000.00 will cost the homeowner $431,000.00 ($231,000.00 in interest charges) How about something that gives the consumer a break for a change? There is an equity acceleration tool that simply uses the banks systems now in place to establish a Home Equity Line of Credit like a checking account. That way, your money sits in the HELOC bringing down the balance while you are able to make larger payments out of your HELOC to your 1st mortgage. It’s a simple process that eliminates years off a mortgage and interest payments. Some lending institutions, such as Chase Bank, are very familiar with this type of mortgage payment plan and have created Advanced Lines of Credit that now allow homeowners to take advantage of this interest savings tool. Get the facts before you react. Check out the Money Merge Account. It has been investigated, examined and checked out every which way. It is legitimate. That’s why there is a new Money Merge Account customer every 19 minutes and that is also why mortgage brokers, bankers,consumer credit counselors and real estate professionals are now agents for Money Merge Account. They are helping their clients.

Comment from Chris Butterworth
Time: September 11, 2007, 10:00 pm

Cliff,

If you read any of my posts on this topic, I’ve never once said these products are “bad”. I argue against them on 2 very specific points.

#1) I have said, and will continue to say, that the true benefits of this program are different than what is being advertised on the radio. “Pay your loan off in half the time without any extra payments or changes in your spending habits.” Nope - not true.

This loan product only works as advertised when you do not spend any of your discretionary income. Let’s assume you spend $1,000 less than you earn each month, so at the end of the year you’ve accumulated $12,000 in savings. If you do anything with this $12,000 other than leave it in your account, the program doesn’t work. Can’t go on vacation. Can’t buy a nice gift for the family for Christmas. Can’t buy that great stock opportunity. Can’t do anything other than leave the money in your account. In my opinion (and in the opinion of the Consumer Action Law Centre), this is a significant change in spending habits.

#2) This program offers no real benefit over using a traditional mortgage and a traditional HELOC. If the borrower isn’t going to use their $12,000 savings each year, they could just as easily pay their mortgage balance off & pay the loan off early.

I’ve heard the arguments that with this program the borrower still has access to his funds for an emergency. Well, the same is true if he has a HELOC. This program is not easy to qualify for, so anyone who can qualify for it can surely qualify for a HELOC. They don’t ever have to use it, but it’s there if they need it. And if it’s an emergency and they need to access their HELOC, it would be no different from using their “savings” in this program - the end result is they will not be able to pay the loan off in as short of a time frame.

When you do the math, and stack one loan against the other, the results are almost exactly the same. Let’s get real - nothing’s for nothing. You pay less interest because you have a smaller balance, or at least you have your money committed against that balance. You don’t get to pay less interest just because you open an extra account at the same bank.

I’m against the false advertising component of this program, and I’m also against the borrower having to pay any extra fees for it. And on a personal level, I’m a big fan and a big advisor of the 30 year, fully amortized, fixed-rate mortgage, which isn’t available with this program. That’s 3 strikes against in my book.

Comment from Cliff Smith
Time: September 12, 2007, 7:40 am

Thanks for the reply, Chris. I think you may have the Money Merge Account confused with other programs. United First Financial has specifically stated that we tell homeowners this program requires no change in scheduled monthly payments and little to no change in their lifestyle. Both true statements. It does not require larger monthly payments, or less money to spend out of pocket each month.

On of the great features of the Money Merge Account is that it is a financial dashboard to help consumers decide how best to spend their discretionary income. Homeowners can plug in different scenarios to the software program before executing them to see how they will play out in their big financial picture. The software makes it easy for the average homeowner to better manage their largest investment their home. That is why it costs money. I don’t know anyone who can figure out the algorithms necessary to manage this on their own in the few minutes it takes to use the Money Merge Account each month. It took mathematicians and engineers several years and millions of dollars in research to come up with this program. If you think you can do better on your own to use your regular monthly income to bring down the balance of a 30 year mortgage faster while carefully avoiding paying too much interest on your HELOC, good luck.

Paying off a 30-year mortgage over a 30 year period is a good way to give more money to mortgage lenders. Look at all the interest paid over that period. How can that be a good thing? I suggest you do some more research on all the features that the Money Merge Account offers to the consumer. I’d be happy to walk you through the program if you haven’t seen it already. I appreciate your thoughts and comments on the matter

Comment from Chris Butterworth
Time: September 12, 2007, 10:58 am

Cliff,

This is the beauty of this medium - lots of minds can flush out the details in a short amount of time.

I respect your passion for the product, but at this point I still haven’t been sold. Mortgages, including this product, are fairly simple; you pay interest on the money you owe. This product claims to help you reduce the amount of interest you pay, but from everything I’ve read & heard, it only works when you have your savings committed to the account. This makes it too similar to a regular mortgage to have the advantage it claims.

That said, I have an open mind and am always looking for a better understanding of the industry, which will enable me to better advise my clients. I do have a finance degree and several years’ experience as a mortgage broker & private money lender before going into real estate, so I’m not a neophyte on the subject.

Let’s do this. Let’s take this conversation offline and get into the nitty gritty details. (no one else is going to want to see a bunch of long emails back & forth). Please give me an email (chrisb@butterhomes.com) or a phone call (623-570-9940) when you have time. I would like to hear the specifics on a couple of borrowers you’ve had who have been very successful with your program or are very good candidates: How much do they gross/net? How much do they spend? What is their mortgage amounts, LTV, other debt, other assets? What happens when they buy a new car, go on vacation, invest in something other than their mortgage account? Etc etc. Let’s put a couple of scenarios to the test, and run numbers on your program compared with a more traditional set up.

If I come away from our conversations with a better respect for your program, I will post as much, and give you a referral as the program’s expert. If not, I’ll say so.

Looking forward to learning more,

Chris

Comment from Kenny
Time: September 22, 2007, 5:08 pm

How did it pan out? No new comments since the last exchange. Looks like Chris’ last challenge may have called Cliff’s bluff?

Comment from Chris Butterworth
Time: September 24, 2007, 7:47 am

Kenny, thanks for keeping me on track. Cliff & I have emailed a few times and haven’t reached resolution yet. I owe Cliff a response right now, but have been busy with both business and personal matters. (notice only 2 posts written last week!) We’ll make some progress this week..

Pingback from Is a Money Merge Account a Good Way to Pay Off Your Mortgage? ∞ Get Rich Slowly
Time: October 1, 2007, 5:01 am

[…] important to note that the Australian Securities and Investments Commission doesn’t like money merge accounts. “Consumer organisations … concluded years ago that there were no savings to be made, […]

Comment from Kristina Kegley
Time: October 6, 2007, 7:45 am

Chris:

Please update. United First Financial is moving into NC and the claims are fantastic but true?–not to mention the business opportunity for sales commissions if it works as advertised.

Thanks,

Kristina

Comment from Chris Butterworth
Time: October 8, 2007, 9:56 am

Hi Kristina,

I’ve had a couple of mortgage folks write (both online & offline) to talk about how great their program works. I’ve also had a couple of non-mortgage folks ask me to continue to follow up, as they don’t believe in the program for one reason or another.

I’ve been on hold for a little bit (business & personal matters) and haven’t blogged or followed-up as well as normal. I will begin addressing this topic again later this month…

Comment from Robert
Time: October 9, 2007, 5:08 pm

I just wanted to add my two cents here. These programs work, but they only give you a “rate of return” equal to the rate of your mortgage (if your mortgage rate is 6%, you get a 6% “return”). It’s a matter of interest rate “arbitrage” and works on the same principles that banks use (borrowing money at a low rate and lending at a higher one).

These programs reverse that “arbitrage” by lowering the debt you owe the bank by the amount of your paycheck (i.e. not “lending” your paycheck to the bank in return for lowering the amount you’ve “borrowed” from them). Doing so effectively gives every penny you earn a higher “interest rate”.

Is this going to make you pay off your mortgage sooner? It depends. For the “average” American, yes. Every penny you do not have to pay to the bank in interest, you get to keep in your pocket. And not many people are earning 6-8% on every penny in their paycheck.

If you can earn a higher rate of return than your mortgage rate, then do that. If you can’t, these programs are an easy way to put all of your money to work for you.

Comment from Cliff Smith
Time: October 9, 2007, 7:05 pm

While Robert’s comment is fairly accurate, it does not take into consideration that the first mortgage is front loaded. So, even if you can earn more than your mortgage interest rate, the savings are even greater when you factor in that you are paying the bank much less interest over the term of the loan. With a typical 30 year mortgage at 6% interest interest, you will pay more interest than principal for the first 20 years. Money Merge Account speeds that up dramatically, so that you end up paying more principal than interest in a shorter period of time. I wonder if the people who are commenting about this program have actually seen how it works. I recommend you run your free, no obligation analysis and watch the video demo at u1stfinancial.net/mortgagecrusher.

Comment from Chris Butterworth
Time: October 9, 2007, 8:57 pm

I feel obliged to jump in here as well. I think Robert makes a good point, and judging by Cliff’s response it is worth digging into a little further. This is the same hurdle that I always seem to get stuck on, and I don’t necessarily buy the “front loaded” comment… Cliff, I know I still owe you numbers on a more detailed scenario offline, but indulge me here in the meantime.

It seems like the MMA-type programs work best when you don’t have any better uses for your funds. But anyone who uses their funds for other purposes won’t get the full benefit of the program, and anyone who has a better investment is better off without the program.

Here’s an example: Take a family with a $300,000 mortgage (30 yr, fixed rate, fully am) at 6.0%. They have $1,000 per month cash flow surplus. They don’t have any other unforseen expenses during the 30 years. They can earn 8.5% in stocks &/or other investments.

Option 1 - use all available funds to pay the mortgage off early. By paying $1,000 per month extra, they will pay their loan off in 154 months. They can then invest their mortgage payment AND the extra $1,000 per month (for a total of $2,799) in their other investment opportunities. At the end of 30 years (360 months), they will have accumulated approximately $1.3 million.

Option 2 - pay the mortgage as scheduled and invest the $1,000 per month. At the end of 30 years, they will have paid their mortgage in full, including $347,515 in interest. However, their investments will be valued at $1.65 million. They will be $350,000 ahead by NOT paying their mortgage early, and this doesn’t even include the additional tax benefit from writing off mortgage interest..

So I’m back to where I started - I’ve had many loan officers tell me this product works (every one of them a seller of the product), but I have yet to see one concrete example that makes me a believer. I need to see the numbers and the math, not a video demo or other promotional materials.

Cliff - like we discussed offline, I’ll get you numbers in the next week or two & we can keep moving forward on our discussions..

Comment from Michael
Time: October 11, 2007, 6:31 am

Chris, I am right there with ya… investing into a ’side fund’ or even removing equity to invest is a superior strategy… Only if the client can get 8.5% year over year and they are ok with the risk. Now I understand long term rates of return and the Ibotson charts for large and small cap stocks, blah, blah, blah.
There is a big difference in outcomes for clients when they get say 8.5% year 1, 0% year 2, 17% year 3, 4.25% year 4, and 12.75% year 5 and so on. Run up an excel sheet and you’ll see what I mean.

On the other hand, it really comes down to what the client wants, and their belief level and risk tolerance. If the borrower will sleep better paying off their home then let them. If they want to pay off quicker and they qualify, the best way to do it through CMG HOA. It’s the only, besides Macquarie mortgage outfit that has a checking account, that is a mortgage.

All I have to say is BOTH ways have their pluses, minuses. Run a ‘proper’ analysis on the client and interview them properly to solve ‘their’ problems. All I have to say

Comment from Chris Butterworth
Time: October 11, 2007, 7:23 am

Michael - great points. The problem with introducing variance in the rates of return is it opens the floodgates to more variables than we can imagine. How many things can happen to a family, and to the economy, over the course of 30 years?!

That’s why I used a very simple example for the illustration above.

It’s also why I advise most of my clients to stick with a 30 yr fixed-rate mortgage - take advantage of the relatively low interest rate environment, and then you never have to worry about surprises making your payment go up. And you can even refinance if rates go down.

For the same reasons, paying your house off early is generally a good idea for most people; even though it might not be the best financial alternative, it removes uncertainty from a family’s life.

My intent for posting on this topic in the first place is trying to figure out the best way to keep a conservative mortgage AND pay it off early. So far the jury’s still out…

Comment from Walter Guidry
Time: October 13, 2007, 7:42 pm

The MMA product seems work to the degree that U1st advertises IF all factors concerning your discretionary income remain the same or improve over the lifetime of the payoff. If the homeowner is on the path to payoff (say 12 yrs on a 30 yr mortgage) and they are in their 3rd year. If, up to that point they have put 100% of their discretionary income into the payoff of the mortgage and they lose their job, then they still have the same mortgage note as they originally had, but now they have zero savings to fall back on. If they are forced to borrow from the HELOC to pay the mortgage, they will probably be borrowing at a much higher rate.

Has anyone considered doing the following:

1. Use MMA to pay down the 1st mortgage to a certain point then refinanced the 1st (even though there is an additional cost) to ensure a much lower overall payment after the refi. This would effectively lower the risk over the payoff timeframe.

2. While it is true that one would be better off investing their discretionary income IF they can earn a higher interest rate than the mortgage interest less the tax deduction. Why not run the MMA analysis wherein you include your investment or savings activity as an expense? This would presumably give you the best of both worlds IF you are a good investor.

Wally

Comment from Brandon Tyler
Time: October 26, 2007, 3:02 pm

Has anyone heard of http://www.sydneyfinancialgroup.com/?
I am thinking about setting up an interview with them.
They charge $3500 for their online software.

Comment from Cliff Smith
Time: October 26, 2007, 9:39 pm

By looking at their web site, Sydney Financial is most likely an independent agent for the Money Merge Account that has been discussed in this blog. I am sure they would be happy to show you the program.

Cliff

Comment from Cliff Smith
Time: October 29, 2007, 5:17 am

I should add additional information to my previous comment regarding Brandon’s question about the software from Sydney Financial.

Ask them if they represent United First Financial. If not, I can’t speak to the quality of their product, but if they are a Money Merge Account agent then they work for U1st.

There are similar programs to Money Merge Account, many of which I have investigated. However, I haven’t come across any that are as efficient and accurate as the U1st product. Yes, it is a software program that is designed to help people manage their money, eliminate interest and pay off mortgages in 1/3 to 1/2 the time without refinancing and with little or no change to their lifestyle.

My wife is an experienced consumer credit counselor, we have attended numerous training seminars with U1st regarding Money Merge Account and are very familiar with this program. We are also independent agents that would be happy to show you the program. We believe Money Merge Account is another good way to diversify your assets, putting your income to work in a less risky environment than the stock market.

The Money Merge Account is represented by more than 18,000 agents nationwide, including mortgage brokers, accountants, lawyers, financial planners and others in the real estate and financial industry. It has been featured in investigative news reports that proved it worthwhile and has been mentioned as a new financial tool that is truly providing value for homeowners.

There are many ways to learn about Money Merge Account. You may contact us for information if you like.

Cliff Smith & Jane Wakefield
United First Financial
Money Merge Account Independent Agents
www.u1stfinancial.net/mortgage crusher

Comment from Jack Davis
Time: November 1, 2007, 9:28 am

I’m confused about this concept—– Chris and and Cliff.

Comment from Skeptical
Time: November 1, 2007, 9:50 pm

I’m still waiting for the smoke to clear and Chris to share his .02!

Comment from Richard McDonald
Time: November 6, 2007, 2:41 pm

Chris,
I have a big problem with you stating that you are a fan of the 30 yr fixed rate fully amortized mortgage. The principal in those mortgages do not equal interest until approximately 20 yrs in. How could this be the best thing for a family when you pay 431,000 for a 200,000 house. Thats crazy and utterly insane. It seems you are a flack for the banking industry. I applaud anyone that is trying to get out from under this type of situation. What you need to do before you start opposing something is get the facts about it. That’s right, spend the $3,500 (write it off as research), work with a consumer that qualifies for the MMA and monitor their progress, both the HELOC and their primary mortgage. I am a real estate agent, mortgage broker and investor. I also have my degree in economics and graduated in 1981 as a member of omicron delta epsilon (International Honor Society in Economics). I have studied the MMA and CMG HOA and have found each to be credible instruments for consumers to put some type of discipline into handling their finances. I’ve looked at your spreadsheets and they do not compare to the consumer friendly, ease of use software of the MMA. Don’t throw numbers around about investing $3,500 into the mortgage instead of the software because the average consumer would not have the discipline to continue the follow up and if they needed that $3,500 back for an emergency the bank will not return it. Whereas, if utilizing the program correctly and as laid out the same consumer will be able to borrow that from his HELOC with no problem. Without refinancing his 30 yr mortgage to lower payments or need a second lien to consolidate debts. By the way Chris, 9/12/2007, you challenged Cliff. It is now 11/6/2007 and all the excuses have been on your end.

Comment from Chris Butterworth
Time: November 7, 2007, 10:38 am

Richard -

I’m not sure you’ve either read or digested what I’ve written on this topic. I have 2-3 main points of contention, and I’m still open to being proven wrong. But no one has shown me anything factual - just a bunch of noise & advertisements so far.

1.) Any borrower who qualifies for this program (good credit, 20% down payment, earns more than they spend) could achieve VERY SIMILAR results by using a standard loan & HELOC.

2.) This program makes HUGE advertising claims which aren’t true. The drastic, cut-your-loan-in-half type of results are only seen when ALL discretionary income is being used against the loan. Borrowers who spend or invest their money elsewhere will not see the same benefits.

3.) This program utilizes an adjustable interest rate. This forces borrowers to take on the risk of future changes. Considering we’re near historic lows in terms of mortgage rates, and nobody knows what’s going to happen in the next 3, 5, 10, or more years, I believe it’s safer to remove mortgage interest rate risk from most families’ lives.

I appreciate your background. I have an undergraduate degree in finance, an MBA, and have been in the mortgage, finance, real estate, and banking industries over the last 17 years; I am very qualified to look at facts, do the math, and make an informed decision.

You tell me “Don’t throw numbers around…” I’m the only one actually using numbers! Lots of people selling this product have argued with me that it works, but not one of them will put a true, detailed analysis to the test.

You also tell me to work with a client who qualifies for the program, and then to monitor their progress, before making my decision. That’s not practical at all. I don’t want to wait several years before making a decision - if that’s how things worked we would just recently have figured out that the internet is useful! Secondly, like I said above, I believe anyone who qualifies for this program COULD achieve similar results on their own. The trouble is you can’t find one borrower and have them use both options - that’s why we need to put a hypothetical example together where we can compare results.

I’m not sure what you mean about looking at my spreadsheets as I haven’t published any…

Cliff has been the only person to agree to run numbers with me, and at this point we are still working through that process.

Until someone can prove to me otherwise (and believe me I’m very open minded to the facts), I’m sticking with my points above. And none of this changes the fact that the Australian Securities and Investments Commission shares my opinion.

Comment from Chris Butterworth
Time: November 7, 2007, 10:51 am

Final Comment - for now…

I want to say thank you to everyone who has participated in this discussion thread. Obviously this is a topic which has sparked some interest.

I’ve tried to keep the discussion to the facts of the issue, and for that reason I have not approved some comments that were basically advertisements for this mortgage type. My apologies to anyone who feels slighted that his/her comment wasn’t approved.

I asked Cliff Smith in this thread to work through a scenario with me, saying I will publish our results. That is a topic which is still in process, and I will make a public statement once we have given this experiment a fair shot. Either I will publicly share that I have seen the program work, or I will publicly re-state my current opinions about this program.

Until then I am going to close the comments on this post. If you have a salient point regarding the Australian Securities and Investments Commission, or if you have some detailed piece of information that hasn’t been covered yet, please email me privately at chrisb@butterhomes.com.

Thank you,
Chris Butterworth

Comment from Chris Butterworth
Time: January 10, 2008, 10:05 am

I promised to post an update with the results from my discussions with Cliff and his wife, so here it goes..

After emailing back and forth a few times, we decided to work through a very specific sample of a hypothetical family, by comparing the financial results for this family using traditional mortgages and the money merge account. We would both work through the scenario using the different products (Cliff would use the mma, and I would use traditional mortgages), and we would compare the results, with support provided (show your work, as my teachers used to say.)

On November 7, 2007, I emailed Cliff a very detailed scenario: 45 bullet points of information covering all types of information about our family & what the future might hold for them. This information included such things as: income and expenses, credit score, interest rates, unforeseen expenses (kids need braces, ill family member back east, etc), unforeseen income (inheritance), job raises, promotions, lay-offs, sabbaticals, kids’ college expenses, weddings, vacations, investment opportunities, etc etc. There are thousands of things that can happen over the course of 30 years, and I tried to bring a few positive and a few negative ones into our hypothetical family’s life.

Today is January 10, 2008, and I have not heard back from Cliff yet. Not even an email to clarify anything, ask any questions, or simply to say he’s working his way through it.

I’m taking this as a signal that all of my previous articles and comments are accurate. This is not the product it claims to be. For anyone with lots of money just sitting in a checking account, this program might be worth a look. For everyone else, it will not be very effective.

I’ll close this post with a quote from an email sent to me by Cliff’s wife (who is also a loan officer for this product, and is, by Cliff’s account, the “numbers person”): “What drives the Money Merge Account is discretionary income that would normally just sit in a checking account waiting for due dates to pay bills…”