What is a Money Merge Account?
Maybe you have heard about this whole Money Merge account thing or United First Financial and wondered what it is. I did too. I first found out about these programs a little less than two years ago and did some quick investigating, but didn’t do enough research to fully understand the Money Merge thing.
Disclaimer: I do not currently have a Money Merge Account. All the information included here about them is from interviews, research, building Excel spreadsheets, and my own calculations – not my own personal experience using them. I say this because there very well could be some pieces to the puzzle that I am missing, if you see any please share them in the comments.
Also, right off the bat, this product is not designed to be a quick fix to pay off your mortgage and it should only be used by people who are very disciplined with their finances. Honest MMA companies and sellers of the products have said that themselves. If your life is a financial mess, you need to get it cleaned up before considering a Money Merge Account.
So what is it anyway?
In researching this, I found a couple of good explanations of what a Money Merge account actually is. TheSimpleDollar defines it as:
A “money merge account” is a special home equity line of credit placed on your home. Every time you receive a paycheck, the whole thing goes straight towards first paying off any balance in your money merge account, then the entire remainder of your check goes towards paying the interest, then the principal of your home loan. Let’s say you had a mortgage with $1,500 payments and you set up a money merge account. Each month, you received $3,500 in paychecks, but only spent $1,200 (and sometimes less). That means that automatically $2,300 (and sometimes more) goes towards that mortgage each month – an extra $800 towards principal every single month. This means a 30 year mortgage would be paid off in 13 years and two months.
GetRichSlowly defines it as:
- The homeowner sets up a home-equity line of credit (HELOC), borrowing against the value of his property.
- Some large sum is withdrawn from the HELOC and used to pay down the primary mortgage.
- The homeowner does not deposit his paychecks, etc. into a traditional savings account, but applies them to pay down the HELOC.
- From time-to-time, another large chunk of money is taken out of the HELOC and applied to the primary mortgage.
- In case of emergency, the homeowner takes more money out of the HELOC.
- Though the HELOC will likely have a higher interest rate than the primary mortgage, it’s actually cheaper to maintain because of the way the interest is calculated.
- It can help you pay off your mortgage in less than half the time (for most people)
- You probably won’t know for sure what kind of results you are going to get with the program until it is up and running.
- You will need to open another line of credit.
- You have to have to be bringing in more money than what is going out each month in order for it to help much.
- You have to very closely track your payments!
- It will can become very difficult to budget since everything is coming out of the same bucket. And if you you begin spending more than you would otherwise because of that lack of a budget, you quickly nullify the potential gains possible.
Interview with an MMA company
I recently had an interview with the owner of Smart Equity. He agreed to give me some of his time to answer questions that I had about the Smart Equity MMA program and Money Merge Accounts in general. After talking to him, I felt like I got a better understanding of what was actually happening with the system.
The Money Merge Account system
For me, I think I figured out (someone please correct me if I am wrong) a good way to think about it…
Let’s say you had a $100,000 mortgage for 30 years (@ 7%). You would be paying 7% interest on that $100,000. What if you could transfer $10,000 of it into a loan that didn’t charge interest? You would then have a $90,000 balance on your mortgage being charged the 7% and $10,000 that you still had to pay for, but that was at 0%. I think this is what is essentially happening in the Money Merge programs. Once the $10,000 was paid off, you would then move another $10,000 to a loan with no interest. Then you would be down to less than $80,000. If you continue this cycle, it would be paid off very quickly.
From what I understand, this is a very generalized example of what is going on with a Money Merge account. The MMA software does the number crunching for you and always keep you at the most optimal point to pay down the mortgage the quickest. While the software would definitely make this an easier and probably safer process, you could still get great results doing it yourself.
For example, Using the details from the example above…
- 30 year $100,000 mortgage at 7%
If you paid $10,000 at the beginning of the year with your credit card that had 12 months of 0% you would have to pay $833.33 each month to have it paid off in a year. This assumes that you have an extra $833.33 every month over and above your normal expenses. If you repeated this process each year (according to my calculations) you would have the house paid off in about 7.5 years. In those 7.5 years you would have paid $29,912.69 in interest charges. This would have been a savings of $109,596.21 in interest charges if you did this method rather than just paying your payment each month for 30 years.
You can see an example of some calculations I made below…
I will be the first to admit that a $100,000 mortgage or having $833.33 to pay extra each month may not be realistic for most. It is just to illustrate the point and I picked simple numbers to make the example clear.
You need to have extra cash for the Money Merge to work well
What I see from all this is that, just like any mortgage pre-payment plan, the speed with which the mortgage is paid off is directly related to the amount extra you have to put towards it. If you only have $50 a month extra to throw towards your mortgage, sure the MMA software will help a little bit and may even pay for itself over time, but you are not going to be able to pay off your 30 year loan in 11 years. In the example we had above paying principal only on the mortgage would take 12.5 years and that is assuming the whole $100,000 was at 0%, which the Money Merge can not do. It takes it in chunks so that you have large chunks that are getting lower interest rates, but it can’t take the whole mortgage.
Dave Ramsey’s take on money merge accounts
My final thoughts on Money Merge Accounts
Doing the research, building spreadsheets and running the numbers has led me to one conclusion. It is worth your while to pay extra towards your mortgage. Regardless of whether or not you use the MMA software, it is worth trying to pay some extra principal on your mortgage on a regular basis – it greatly shortens the time you will be paying on the loan.
From what I can tell, the Money Merge software will amplify the process and will help you stay on track, but if you don’t have extra money to pay towards your mortgage, don’t waste your time.
Also, I will say it again, because it bears repeating: you need to have your finances in order before even considering something like an MMA. If you ever pay bills late, if you can’t balance your checkbook, if you don’t know exactly what is going on with your finances, I do not recommend Money Merge Accounts. If that is you right now, I would suggest trying to pay extra towards your mortgage each month and if you can do that successfully for a while, then it may be worth considering.
If you are interested in starting an MMA, I recommend the guys from Smart Equity. They were very helpful and gave me hours of their time – phone calls, emails, research just to help me understand the product. At $695 their MMA is the cheapest one I have found out there (compared to the $3500 UFF product) and customer support is included.
This article was included in the Carnival of Personal Finance
So, those are my thoughts on Money Merge Accounts. I would love to hear from people who are currently using them or who have more information about them in the comments below!