I mailed in a request a few weeks back for Wise Bread to do a post on mortgage accelerators, and if this is in response to that I greatly appreciate it.

It seems to me however that your analysis isn't 100% right. Let's look at a situation where you make no additional principal payments and you spend every cent you make. If your bank account and mortgage are merged, the time between when you receive your paycheck and you spend your paycheck can be used to temporarily lower your principal. This results in a reduction of interest paid.

Now the $3500 fee could very well negate all the interest savings, but what if you opened a HELOC yourself? Say you normally keep $5k in your checking account. You open a HELOC and immediately transfer $5k to your mortgage along with the $5k in your checking account. Now although your interest rate on your HELOC is higher than your mortgage, you direct deposit your paychecks into your HELOC and pay your bills out of it. The HELOC then acts as your "money merge account" without you having to refinance your original mortgage. Your optimal gain is when you keep your HELOC at as close to 0 as possible.

I'm not sure what the costs are in setting up a HELOC, but you also have the benefit of an emergency fund. Rather than keep cash sitting around in case of an emergency, you use it to pay down your mortgage. Should an emergency arise, you already have the HELOC set up to cover you.

My math is a little fuzzy right now but I think it could certainly help, although not to the degree MMA claims since you're not paying off $1k extra in principal each month.

Julie,

Thanks for all your work on this post - I find it really interesting. I'm unable to view the U first video on their site (currently at work), but I did find this:

http://youtube.com/watch?v=D_URQoEblKE

Also there seems to be a problem with the comparison done in your spreadsheet. You model the $3500 cost of "The Other Way" correctly, however you don't model the resulting benefit.

The calculation isn't simple, which is why I've been having so much trouble with it. It sounds like the U first system provides software that tells you when to transfer money from your HELOC to your mortgage such that you maintain the smallest possible revolving balance.

I don't think the software is worth $3500, however I can't figure out how to calculate exactly how much you'd be saving. The claims of paying off a mortgage in 8-10 years always comes from also making additional payments; I'm curious how much time is shaved off by making no additional payments and just by making your payments differently via the HELOC.

I disagree - I think there IS a benefit without making additional principal payments. I'm having trouble calculating the exact benefit, so let me try through an example.

Let's say you have a $200k mortgage, and make $5k a month. Let's also say you have a $1500 mortgage payment, and spend the remaining $3500. This leaves you with no extra money to apply to principal.

1) With a "normal" mortgage, you'll pay your $1500 every month, and your principal goes down a small amount.

2) Now say you take out a HELOC for the same amount as your monthly income, $5k, and apply this directly to your mortgage. Your paychecks get direct deposited into this HELOC and your bills get paid out of it, and depending on the exact timing of when you get paid and when your bills are due, you could say that the average daily balance is $2500.

So how are these two different? In #1 you pay interest on $200k. In #2 you pay interest on $197.5k. What I can't figure out is how significant that is, but it is definitely different and you have not contributed anything extra to principal. You're benefiting from the difference in how interest is calculated on a mortgage (monthly) and a HELOC (daily). Also the benefit should increase over time. The price you pay is the difference in interest rates as well as any fees associated with it.

I'm not saying U First is selling a good product, but that there is some sense to what they're saying.

I originally submitted this question after hearing a news interview with the author of this book:
http://www.amazon.com/How-Your-Home-Years-Sooner/dp/0974267600
I haven't read the book, although there are some interesting comments from people who have. He recommends using a HELOC as a way to reduce interest payments.

Thanks for discussing this, and for dealing with a stubborn Wise Bread reader :)

As a loan officer for a new hampshire based mortgage firm I can assure you that you could not get your own heloc for anywhere close to zero, as their rates are closely tied to the prime, and also that the $3500 fee for the MMA account is actually less than the closing costs on many helocs.
I would be happy to be contacted via the e-mail address I have provided to Wise Bread for further information.
Sincerely,
Denise M> Smith

Hi Julie,

I am curious as to what you really know about the mortgage industry or even this money merge account? What makes you an expert to talk about this? I see your profile and I'm amused.

I see you using the term, 'I guess'; I find that to be a funny term in an industry that is not based upon upon 'guesses', but it is based upon factual evidence.

We believe that the money merge program/concept is is good one, just like every debt reduction program (that works) out there, but we do have a problem....

I am referencing the "Julie’s way" program. The money merge account is about ZERO EXTRA Payments to your budget every month AND yours is NOT. Your program is misrepresenting the facts and in the mortgage business that is called fraud.

I am a 10+ year mortgage professional and a writer for one of the largest and most respected mortgage industry publications and this is article is exactly what I am tired of. People that don't know what they are talking about.

3 things:
1) Go back and listen in on the money merge presentation and get the facts correct
2) last I statistic I heard from the federal reserve is that only 12% of the loans taken out in our country are paid ahead - People need a system
3) know your facts before you publish them

I agree with needing to see it in a spreadsheet to get a feel for the flow of it. The presentations are way too confusing and do not give enough detail, only generalizations, which has most people skeptical about the process. What are they hiding? Are they afraid that the calculation is really quite simple and people will not spend money to buy their software once they know the "secret"?

It appears that once you spend $3500 on the software and get the first lump payment on the mortgage, you have to pay the HELOC down to some given point before they recommend that you submit another large lump sum payment (borrowed against the HELOC) to make an impact. If you are on a tight budget already with say $100 or so in extra income each month, it would be years before another lump payment went through. In the meantime you are incurring additional debt on your HELOC at a prime+ interest rate that is generally higher than your fixed rate mortgage.

It would seem that bi-weekly payments are the way to go since you truly are not paying out anything additional each month, only changing when you send in the payment.

Also, this program seems to force you to use anything additional regarding your income to pay on your mortgage. That is not realistic given vacations, emergencies, etc. I have not seen anything during the on-line presentation or the face-to-face presentation I was given by a rep that discusses any of these issues.

I really like the concept but need more clarity that no one can seem to give.

So, should I do this program or what?

The above post referenced the incorrect website. Sorry.

Correct Website www.Maxequityexpress.com

My understanding is that with the MMA you must have and adjustable morgage rate, "in order for the program to work". What happens to the figures should the inflation rate increase (dramatically). How do the numbers look then?

Hello everyone,

I've been researching on using HELOC to accelerate the mortgage pay off and I think I can give a good example of how this technique will work.

Disclaimer: I'm not in the mortgage business nor am I an investment advisor so please don't take my words at face value. In other words, I may be misstating something about how loans work as well.

First off, the UFF site does say (in their FAQ) that this method ONLY works for people who have discretionary income each month. If you don't have any, then it will not work. But if you don't have any to begin with, then surely you cannot implement Julie's method either, as it requires putting in EXTRA monthly payments towards the principal.

To understand why MMA or similar products work, you need to recognize that a fix-rate mortgage is a close-ended, compound-interest type loan and a HELOC is an open-ended, simple-interest type loan.

If you look at your mortgage table that Julie created in her Excel spreadsheet (a big thanks there Julie), you will see that most of your payment goes toward the interest. This is why it is a close-ended loan...because you are paying the money back on a pre-calculated schedule. Whereas with a HELOC, you pay interest only on the outstanding balance for each day, you are not following some pre-established payment schedule.

Now, lets look at an example. Assume a 200K loan, at 6% fixed rate amortize over 30 yrs. Based on Julie's spreadsheet, the total interest paid at the end of 30 yrs is $231,676.56.

For simplicity, assume we also opened up a HELOC at the same time that we established this mortgage. So along with the first payment for the mortgage, we take out $5000 from the HELOC and pay it towards the principal of the mortgage. According to the spreadsheet, we now see that the total interest paid is $206,713.31. An immediate saving of $24,963.25 in interest cost for our $5000.

How much is the interest on that $5000? Well, lets be conservative and simple and make it 10%. $5000 x 0.1 = $500. That $5000 will cost you $500 for the year, or $500/12 = $41.67/month!!!!

Let us assume you have only $500 discretionary income per month. As you can see, in this simplistic case, it will take you about 11 months to pay off the $5000 in your HELOC. $41.67/month x 11 months = $458. So it costs you $458 in interest to use that $5000 from your HELOC to save you $24,963.25 in interest in your mortgage!! WOW!

How we can cut the cost of the interest from the HELOC even more? By using it like a checking account and by using your credit card to make most of your purchases if not all. When you get your paycheck, simply move all that money into the HELOC. What this will do is it will reduce the balance on the HELOC, hence, reducing the interest you have to pay. And by using your credit card to pay for your living expenses, you delay the withdrawal of that money from the HELOC. The longer that money stays in the HELOC, the more you save in interest cost.

So at the end of the month, you transfer some money out of the HELOC to your checking account and write a check to your credit card company to pay off the charges that you have incurred during the month. Keep in mind we assumed to have an extra $500/month discretionary income. Thus, you can now see that at the end of the month, your $5000 HELOC balance will now be reduced to $4500 + the interest for that month.

Lets say you get pay net $3000/month on a bi-monthly basis in the middle and the end of the month. On the 15th, you trasnfer $1500 from you checking to your HELOC account. On the 26th, you transfer $2500 from the HELOC account back to your checking account to pay your credit card company. On the 31st, you get another deposit of $1500 from your employer and you then transfer that into the HELOC.

This is what your HELOC balance will look like:

$5000 (from day 1 to day 14, this balance is used for interest calculation)
$3500 (from day 15 to day 26, this balance is used for interest calculation)
$6000 (from day 27 to day 30, this balance is used for interest calculation)
$4500 (on day 31, this balance is used for interest calculation)

As you can see, the interest is now less than the $41.67/month as your balance did not remain constantly $5000 through out the month. And within 10-11 months, this balance will be paid off and you are ready to begin another $5000 round.

I hope from the discussion above, you can see the effectiveness of using a HELOC to pay down your mortgage faster. But you can also use this approach to pay off any debt you have, not just a mortgage. And as you can see, our HELOC, even though it is pegged at 10% interest, still yielded much less net interest cost than the mortgage interest cost!

Furthermore, you can see that you need extra discretionary income each month to make this work. But the huge benefit is, you can always withdraw the money if you need it (thanks to the HELOC). Whereas if you pay extra towards your mortgage without having a HELOC, you lose access to your equity! Obviously, the more discretionary income you have the quicker you will pay off that $5000 balance and the quicker you can restart the next $5000 round.

Someone had mentioned in a previous post that you need to consider the cost of opening a HELOC. Well, find one that has no cost. Or just roll the cost into the HELOC balance and you can see it still saves you more money. Bank of America offers HELOC at no cost!

Now imagine this scenario: You have been paying an extra $500 per month towards the mortgage without using the HELOC method for 5 years. You are feeling pretty proud of yourself for such discipline. Then you get laid off and can't find a job for a year. Will you be able to cope? Assume your emergency fund runs out before you land another job. Can you still cope now?

You won't be able to draw on your equity because you failed to open up a HELOC. What's worse, you WON'T be able to establish a HELOC now because no bank in their right mind would give you one when you have NO INCOME!!! Now you can see how beneficial the HELOC method is!

Summary:

1. HELOC are open-ended, simple interest loans. Converting money tied in close-ended, compound interest loans to HELOC is the key to dramatic savings in interest cost.

2. Save tens of thousands (if not hundreds of thousands) of dollars in interest cost.

3. Own your home completely in 1/3 to 1/2 the normal 30 yrs span without changes to your normal spending habits.

4. Instant access to your equity at any time.

5. Just because a HELOC interest rate is higher than your mortgage rate doesn't mean you end up paying more interest. You have to analyze your net interest payments for each loan.

One last topic:

Now that you understand how this concept works (I hope you do :-)), should you fork out $3500, or $1999 or even $1250 for a software program to do this for you?

Well, the software will definitely help you "monitor" the progress for your mortgage pay down. It will also do any recalculation necessary in case you are not consistent in getting that discretionary $500/month. But it also maximize the use of the HELOC to help pay down the mortgage in the quickest time (at least that's their claims).

UFF supposedly hired Ph.Ds in mathematics to design their algorithms. And they also invited several math professors to try to beat their software.

I have yet to purchase any software myself as I would like to find out which is the better value.

To Julie:

Thank you for your blog. It's a good place for me and everyone else to participate and learn. I have a comment about your statement:

"The HELOC arrangement is a bit of a bother to me, but I may just be old-fashioned about borrowing against my home."

Well, how is that different from borrowing a primary mortgage? All you are doing is borrowing from the house using one type of loan (HELOC, open-ended, simple interest loan) and paying off another loan (which you are also borrowing from the house) that is a close-ended, COMPOUND interest loan.

"It can be a dilemma to decide pay off early vs. invest."

I agree with Eddie's comment regarding this topic. Many people have expounded their ideas/stance on this topic. It all boils down to personal preference in terms of how much risk can one afford to subject himself/herself to.

To Eddie:

Thanks for the positive feed back Eddie. A question about your coment:

"I have found a new program that is less expensive and provides the same benefits at www.Maxequityexpress.com"

How do you determine that the program provides the "same" benefits? Did you have the two company do an analysis of your situation? I'm asking because I'm trying to get a couple of vendors to give me a free analysis right now. By the way, the product from that website is the same as EquityGeniePro (http://www.equitygenie.com/calcs.html).

To: Brad G.

Questions about your statement:

"The people defending MMA's program are the people charging $3,500 and where their commission is between $1-2K. Their program would have only a marginal difference over an under $100 personal finance program such as MS Money or Quicken."

Prior to my posting of how to accelerate your mortgage with a HELOC, do you know how the MMA program or similar product works? Have you made a comparison analysis between using your method and theirs? I'd be interested to see if you some numbers. It just might convince me that I don't need the software after all :-).

I realized I forgot to mention that I use a fix rate of 9% for the HELOC. Keep in mind that the HELOC will be a variable interest rate. So perhaps in this basic version of doing this method, you will come out slightly better by paying Semi-monthly and adding extra per month.

However, keep in mind that UFF claims much, much better results. And I'm guessing their model uses variable interest rate for the HELOC.

But as you can see from the discussion above, it sure doesn't hurt to get a free analysis from UFF if you are interested.

Tri,
Results are results. It's math, you can't acheive different results using different software if the math is correct. All of them use projections since things will change along the way. So, it's your financial position that counts. If you bought 5 programs, the results for you should be the same at the end for all of them.

Perhaps the projected results will vary from one to another. Should you be leary of the one showing you the highest savings that also happens to have the highest price tag? My advice, if you buy one, get the one with the promo code talked about above, since it sounds less expensive.

Do it yourself if you like. Put all your discretionary income into your mortgage each month. Everyone already knows this will rapidly reduce your interest, but how many people do it? Not many. Remember though if you do, you won't have anywhere to go in the event of an emergency. The program and the software are tools. We can all write our checks in the register and write out our own tax returns, but I'd gladly pay (but not too much) for a piece of software to help me. Is $3500 too much for you when there are comparable programs out there for less?

If I use your spreadsheet and save fees to put into a reserve for emergencies, it's a start. There can be many unexpected changes to income and expenses. You could go thru that reserve in no time.

If I add to my reserve by putting some of my discretionary income into it, I'm defeating the purpose of reducing my mortgage. I can't have the best of both worlds.

I can have the best of both worlds when I use the software. It does the work for me. It tracks my income and expenses and my HELOC balance. I have a built in reserve. It tells me what to do next. I can easily see the effect if I have a one time expense or income. It forces me to look more closely at my budget. I didn't do that before.

It's like taking a sophisticated spreadsheet and combining it with other spreadsheets and putting it all in one. It motivates me to do it and it saves me a lot of time. Is it worth the price? Sounds like a personal choice. Most people I know have anxiety about doing it on their own using spreadsheets, so they do nothing.

If you want to track your mortgage payments, pay down debts, or need to do some calculations in Excel, check out this site:

http://www.vertex42.com/

They have a ton of templates in Excel. Very easy to use.

Does this mean you've seen that program or use it and that the results are not very good? Please elaborate so we all can gain some insights.

Thanks.

I've seen it. I recall a guy who bought it who was willing to sell his for $50. I bet you could offer him $10 and he would take it. If you look around, you can find him.

If you get it for $10, I guess I'll only be able to eat fast food instead of a nice dinner.

The high price was a major turn off for me as well. I went and got quotes from a couple of vendors and based on MMA's projected savings for my current situation, I realized that in the long run, I save more money in interest cost with MMA than other competing products. That's what I based my decision upon in terms of pricing. I even factored in the fact that if I took the difference in the initial software cost to pay down my 1st mortgage's principal, MMA's still yielded better savings for me. And this is with just one property.

As I pay down my 1st mortgage and then use the software for the next property that I purchase, I predict even more savings down the road. Thus, it is worth the investment for me. I may a couple of thousands now, but long term, I'll be saving tens of thousands if not hundreds of thousands!!!

Each person's situation would probably result in different projected savings. I strongly recommend people to call the companies and ask for a free analysis and look at the long term benefits.

Does anyone have a comparison or experience with either UFF or this MAP program? The MAP is at http://www.mortgage-acceleration.com/

I have seen other mentions of MMA, but not sure if anyone has used this program. Seems to be more educational than "calculator". That is my understanding as it sits anyway.

I have been following Tri's interesting posts. Like her, I have been investigating mortgage acceleration programs for the last few months, as I am interested in getting rid of my mortgage.

I have been creating my own spreadsheets, trying to understand what the magic is in using a HELOC, as opposed to simply sending in spare cash.

So, to use Tri's example of $200,000 borrowed at 6% for 30 year, you pay $231,676.38 interest. My numbers will differ by a few dollars as I didn't round. If you pay an extra $500 a month, you pay off the mortgage in 179 months and pay $102,534.54 in interest. If you pay $5000 every 10 months, you do a little bit better. You pay off the mortgage in 175 months and pay $99,376.71 in interest.

I learned there is an inherent fallacy in every HELOC example I have seen.

If you borrow the $5000 from the HELOC and and you only have $500 a month to pay it back, that $500 has to equal the sum of the principal and the HELOC interest at the end of the month. In other words, the interest on the HELOC becomes another bill that you pay and you have a closed-end loan. So, instead of paying off the HELOC in 10 months, it's actually 10 and a fraction that represents the HELOC interest you have paid.

I tried to reproduce what Tri had done to approximate the savings in a HELOC shuffle. I assumed the effective interest rate would be 4% and that I would borrow the $5000 in the same month that the HELOC would be paid off. Using this adjustment, the mortgage is paid in 176 months paying 100,090.31 interest. But the HELOC took an extra 2 months to be paid off, even with the extra mortgage payment, and the total interest was about $1600. Adding it all together, the interest cost is about $101,690.

Sooooo, you savings is $102,534.54 - $101,690, about $845. WOW!! All that work... for what? I have no idea what these mortgage acceleration programs do, so perhaps the HELOC costs are excessive. BUT, they keep claiming $1,000's of savings over do-it-yourselfers.

As I have stated in posts elsewhere, the only advantage these software packages and services give you is a way to focus on your end goal of mortgage payoff and see how every dollar spent affects that goal. If you feel that is valuable to you and that you can't do it on your own, then paying for it would be worthwhile in the end.

As another poster noted, you can also use this method to put money aside for investments. However, paying off your mortgage is the same as getting a compounded bond return at the same interest rate.

First, to clarify, I'm a guy, not a gal.

As for your example, it's really similar to my example in Post 33. And as you can see there, the saving is also minimal. But the advantages are

(1) you have access to your money at any time;

(2) your spending habit is not affected (because you are not obligated to make any extra payments, instead, you are merely parking your extra cash in the HELOC to pay it down).

> BUT, they keep claiming $1,000's of savings over do-it-yourselfers.

I'm not sure if that's their exact claim. I believe their claim is a homeowner will save $1,000's over the standard 30-yr mortgage approach and that this method speeds up the mortgage payment dramatically while not forcing a change in the homeowner's spending habits.

> As I have stated in posts elsewhere, the only advantage these
> software packages and services give you is a way to focus on your
> end goal of mortgage payoff and see how every dollar spent affects
> that goal. If you feel that is valuable to you and that you can't
> do it on your own, then paying for it would be worthwhile in the end.

I concur. But as Scott in Post 16 says at the end in item #2:

"last statistic I heard from the federal reserve is that only 12% of the loans taken out in our country are paid ahead - People need a system"

Whether he got his fact correct or not I do not know. But I'm sure a lot of people can use this approach since it really doesn't affect their spending habits.

Another approach one could take is simply pay extra towards the principal monthly but open up a HELOC anyway. The HELOC would allow access to your equity in times of need. This will yield the same result and cost you nothing extra!

Here's a link to a calculator that will help you determine if HELOC method and the software will help you save more money IN YOUR SCENARIO:

http://www.maxequityexpress.com/payoffcalc.swf

Use the mortgage calculator at bankrate.com or Julie's mortgage spreadsheet or the one from http://www.vertex42.com/ to set up a mortgage schedule that reflects your current scenario.

Then enter in how much extra income you will put in each month for the early mortgage pay off. The spreadsheet will show you how much interest you pay and save.

I will use the example in Post 54 to make it easy.

Loan Amount $200,000.00
Annual Interest Rate 6.000%
Term of Loan in Years 30

With this loan, if I pay $500 per month extra towards principal the total interests paid is $102,534.54. I call this plan the extra-payment plan.

Assuming a HELOC interest of 9% (current HELOC rates are at 7.75% or so...I'm using 9% just to play safe as rates will vary over time), the maxequityexpress.com calculator reports total interests saved as $128,936.81. That mean we would have paid:

$231,676.38 (total interests paid with normal 30yr fixed loan)
- $128,445.52
--------------
= $103,230.86 in interests.

I'll call this plan the HELOC plan.

Notice the interests paid under the HELOC plan is $696.32 higher than the interests we paid under the extra-payment plan.

Now you may think, "Aha! The HELOC method doesn't work and the software won't do anything for me".

Well, first off, the HELOC method DOES work because it saved you a ton of interests charges over your normal 30yr fixed loan. It's just that for this scenario, it is saving you less than if you simply pay $500 extra/month on your own.

Lets us see what happens when we have $1000 extra per month!

Extra-payment plan: $67,408.31 total interests paid.
HELOC plan: $65,868.52 total interests paid.

That's a saving difference of $1539.79 in favor of the HELOC plan.

Now assume you have $1500 extra per month: the savings difference is now $3075.34 in favor of the HELOC plan!

And for $2000 extra per month: the savings difference becomes $3942.53
in favor of the HELOC plan!

So as you can see, the HELOC plan may make a difference, depending on your particular scenario.

But of course, once we factor in the cost of the software, we see that the savings is really not that much unless you go with the lower priced package.

Since I've already verified that all software on the market does pretty much the same type of calculations, you should now have plenty of data to help you make your decision.

> So, why does the "extra payments" method (given these assumptions)
> have a payoff of 19 years, 2 months? Because, if you look at the
> asterisks**, using the extra payment method of calculation involves
> "making additional payments every month that total one third of
> available monthly budget"; in other words, paying $266.67 (rather
> than $800.90).

Yes, that's the way they calculated it. But I don't bother looking at that, because that's not the same comparison. I simply use bankrate.com's mortgage calculator and apply the full $800.90 per month to get an apple-2-apple comparison.

Another thing to consider if you are concerned about the cost of the software. Take a long term look (that's how I'm looking at it). When you are done paying off your mortgage, you will most likely be getting a lot of extra cash each month. If you then invest in real estate, then IMHO, the software is definitely worth it. Because the more properties you use the software on, the more money it will save in the long run.

By the way, I went ahead and bought the software package from that site.

But look at how much you save in interest with the HELOC method. Although it took 4-months longer with the HELOC method, you save more money. Like I said, it depends on your situation (i.e. loan amount, rate, remaining years, etc.) and how much discretionary income (call it DI) you have.

Also, if you look at it long term and that you intend to buy real estate to rent out in the future (after you payoff your house), the software will be beneficial!

You already see that the HELOC will provide better result if you have a lot of DI. So when you buy a rental property, you will have extra cash (since you're no longer carry a mortgage on your house) as well as the rent paid by the tenant for use to quickly pay down that rental property.

Why dont you take this information and try doing some of your own research along with it. If you just sit and take any old person's financial advice without fully understanding it and knowing it then you will get what you deserve. So take a little time and do some independent research on this. Take notes of what you find and why not report back here with your findings?

Hey Tri,

Sorry about the mix-up.

I hope you didn't pay more than a few hundred dollars for your software. I would like to send a spreadsheet to you that shows that using a HELOC only saves a few thousand dollars over the life of a mortgage. It would be nice if you could post your projections.

To answer the question of whether paying off the mortgage with extra money or using it to invest in the stock market, I've made the following comparison.

Assume a mortgage of $300,000 @ 6% fixed for 30 yrs. By the end of the 30 yr term, you would pay $347,515 (rounded) in interest.

If you have $500 extra income per month and you applied it towards the principal each month, you would pay only $187,220 (rounded) in interest for the duration of 12 yrs and 4 months.

That gives you a savings of $347,515 - $187,220 = $160,295.

That means your monthly contribution of $500 for 12 yrs and 4 months would yield a $160,295 tax-free gain.

Using bankrate.com's savings calculator:

http://www.bankrate.com/brm/cgi-bin/savings.asp,

I get the following pre-tax gains based on $500/month contribution:

Your monthly deposit of $500 for 13 years with an interest rate of 8% compounded monthly with an initial starting balance of $ 0:

Year Balance

1 6440
2 13395.2
3 20906.82
4 29019.36
5 37780.91
6 47243.38
7 57462.85
8 68499.88
9 80419.87
10 93293.46
11 107196.94
12 122212.69
13 138429.71

Final Savings Balance: $138,429.71. Keep in mind this is PRE-TAX gains!!!

As you can see, paying off your mortgage is a much better investment!

To answer the question of whether paying off the mortgage with extra money or using it to invest in the stock market, I've made the following comparison.

Assume a mortgage of $300,000 @ 6% fixed for 30 yrs. By the end of the 30 yr term, you would pay $347,515 (rounded) in interest.

If you have $500 extra income per month and you applied it towards the principal each month, you would pay only $187,220 (rounded) in interest for the duration of 12 yrs and 4 months.

That gives you a savings of $347,515 - $187,220 = $160,295.

That means your monthly contribution of $500 for 12 yrs and 4 months would yield a $160,295 tax-free gain.

Using bankrate.com's savings calculator:

http://www.bankrate.com/brm/cgi-bin/savings.asp,

I get the following pre-tax gains based on $500/month contribution:

Your monthly deposit of $500 for 13 years with an interest rate of 8% compounded monthly with an initial starting balance of $ 0:

Year Balance

1 6440
2 13395.2
3 20906.82
4 29019.36
5 37780.91
6 47243.38
7 57462.85
8 68499.88
9 80419.87
10 93293.46
11 107196.94
12 122212.69
13 138429.71

Final Savings Balance: $138,429.71. Keep in mind this is PRE-TAX gains!!!

As you can see, paying off your mortgage is a much better investment!

Yes, thanks. You are correct. I'll rework the numbers. You can email the spreadsheet to my email: agentinvestor@gmail.com.

Thanks.

I made an error in the earlier post. Here it is again:

Assume you have a $300,000 mortgage @ 6% for 30-yr fix. That means you are paying $1798.65/month. By the end of the 30 yr term, you would pay $347,515 (rounded) in interest.

If you have $500 extra income per month and you applied it towards the principal each month, you would pay only $187,220 (rounded) in interest for the duration of 18 yrs and 4 months.

That gives you an interest savings of $160,295 ($347,515 - $187,220).

If you choose to carry your mortgage for 30yr and invest your $500 extra per month ($6000/yr) at an 8% annualized rate of return, you will get $734,075 at the end of the 30 yr period.

If you choose to pay the $500 extra towards your mortgage for 18 yrs and 4 months, and then investing $2298.65 ($500 + $1798.65 [since you no longer have a mortgage payment to make]) each month (or $27,583.8/yr) for the next 11 yrs and 8 months at an 8% annualized rate of return, you will get $702,118 ($541,823 + $160,295 [interest savings]).

So you have $734,075 (pre-tax) vs. $541,823 (pre-tax) + $160,295 (tax-free).

Now lets consider taxation drawbacks/benefits. I'm not a financial person so someone please help out and correct any misinformation / misunderstanding on my part. Assume for every dollar of interest you pay, you get back 30 cents.

For a 30yr plan, we would pay an extra $160,295 in interest. That means we get back $48,089 in tax savings. With our investment gain of $734,075, our tax would be $110,111 @ 15% capital gains tax rate. Therefore, our net gain after 30 yrs is: $672,052.

For the pre-pay plan, we get an interest savings of $160,295. With our investment gain of $541,823, our tax would be $81,273 @ 15%. Therefore, our net gain after 30 yrs is: $620,845.

So it appears the 30yr plan wins over the pre-pay plan by $51,208.

I used the calculator below to calculate the capital gains:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm

To continue with the above example, but this time, looking at the HELOC method (based on my HELOC spreadsheet implementation):

HELOC method with $500 monthly:
Interest: $132,683 <- how much interest you pay by time loan is paid.
Term: 13 yrs <- time it takes to pay off loan.

That gives you an interest savings of $214,832 ($347,515 - $132,683).

If you choose to pay the $500 extra towards your mortgage for 13 yrs and then investing $2298.65 ($500 + $1798.65 [since you no longer have a mortgage payment to make]) each month (or $27,583.8/yr) for the next 17 yrs at an 8% annualized rate of return, you will get $1,220,268 ($1,005,436 + $214,832 [interest savings]).

I mean please disregard post 78.

I think that there are so many variables that one should consider. My personal thought is that the HELOC method works because of the ability to create an interest cancellation account since you are applying your income to offset the average daily balance on your HELOC. Remember that if you had only $500 in discretionary income and applied it monthly there is a net benefit and it's easy to calculate that effect on an amortization calculator. But the benefit of the HELOC method is that it allows you to accellerate your interest savings by giving you the ability to inject let's say $2000 which is 4 months of your Discretionary Income immediately. This helps reverse the compounding interest on the First Mtg aggressively. As you keep your income against the HELOC you are canceling a good portion of that interest for the $2000 float, then your discretionary income pays off the HELOC and you start over again. I know that many of you are very good at calculating these numbers but this kind of makes sense to me but I haven't put it on a spread sheet. Thanks.

I attended an investor meeting last night with a guest speaker from United First Financial peddling the MMA software. As some of you have concluded, the product is pure snake oil. The notion that it is some powerful collection of complex algorithms able to save users money through interest cancellation techniques is simply false.

Rather than struggle with spreadsheet analysis to reach this conclusion, one need only look at the ground rules offered by the salesmen. It only works if you pay more money into the ALOC/HELOC then you take out. That difference, or positive cash flow, isn't accumulating anywhere as savings, instead its being used to pay down the money you borrowed from the ALOC/HELOC to make principle payments on your primary mortgage.

The initial results seem impressive because rather than making small additional principle payments on your own, which would eventually have the same affect, the program has you borrow larger sums from the ALOC/HELOC for those principle payments then uses your own positive cash flow to pay them off.

The software does little more then tell you when your ALOC/HELOC balance is approaching zero so you can borrow another chunk for a principle payment to your primary mortgage. Really, since you have to input all the data yourself, it doesn't tell you anything you couldn't already have deduced, very easily, on your own.

Finally, for those considering the United First Financial product or others, keep in mind that banks aren’t going to let you cheat them. They’re perfectly happy with you borrowing money to pay down other borrowed money. And they don’t care if you pay off your mortgage early because they will use that extra principle payment money you’re giving them to get a higher return somewhere else – something you could and should do yourself rather than invest in snake oil.

Before you spend 3500.00 or get involved in a heloc. Go to and Check out www.SuperchargeYouMortgage.com ..Turn your speakers on first. I own my home free and clear and am now working on my investment properties. You can also find "Supercharge Your Mortgage" at Amozon books as well.

The HELOC is only calculated from the time at which you borrow from it, but the mortgage is at a constant rate and time. The optimal position for savings will occur if you do not let your "idle" funds sit in your checking account, but use them to pay down your HELOC account until you need them. It is more about timing to optimize all of your income.

Has anyone tried equitygenie? I looked at the UFF software, and the program appears to be great, but I can't see paying the $3500.00 cost if the other less expensive programs work the same way? Any list of other comparable software and reviews?

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To post 93-
If you can borrow at 4% to pay off a debt at 5.625%, and you don't have to pay anything for the privilege of borrowing at 4% (other then the obvious interest) then you will save some money. However, helocs often have adjustable rates so be careful of that.

Additionally, to optimize your savings you'd probably want to use the 4% (hopefully fixed interest rate) heloc to borrow the entire amount of money you owe on the mortgage and pay your primary mortgage off. Then pay the heloc back at its 4% [this is an example of the principle of paying off the highest interest rate debt first to maximize interest savings].

You may also want to look at refinancing. You may be able to get a lower rate then the 4% from the heloc on a refi. Yes, you might have to pay some closing costs, but if the savings going this route might pay for the closing costs.

I was recently involved with a person selling the MMA software. I crunched the numbers, using their example, versus investing their software cost and only the same amount of money they did. That was approximately 2785 every 3 months. Using a best case, and unrealistic scenario of putting all of my cash into the Heloc on the 1st day of the month, and pulling out of the Heloc on the last day, thus achieving the absolute lowest average daily balance, no matter how you look at it - doing it yourself always works out better. What they don't say in the video, is that there is a balance in the Heloc of around 11,000, and you still pay more interest because of that generated using the Heloc. Also, when is it EVER a good idea to take money from a lower interest loan and put it into a one with higher interest. The only advantage is the Heloc, where in case of an emergency, you still haad funds available.

This program is a scam. Only the mathematically unsure of themselves could be tricked by it. There is no "sophisticated" program that can give you a better return than paying as much as you can, as early as you can, on your mortgage. Taking out a HELOC to "prepay" your mortgage just means you are getting additional interest charges, and the borrowed cash would need to be paid back as well. Plus you are paying this company to run their "program" for you.

This is a scam to mislead the misleadable.

I think the concept behind the HELOC is good, but anyone who is sophisticated enough to understand it is sophisticated enough to do it themselves with a spreadsheet. You don;t need to pay someone $3800 to do it.

This would make sense in a stable economy. During DEFLATION, it's better to stretch your mortgage out as far as possible, using the money in a wiser way.

I am a banker, and I can tell you that these products are NOT well regarded in the industry and are almost to the level of being scams. First of all they are not forthcoming about the costs. They do not include the closing costs associate with the HELOC, which can be substantial (you have to get your home appraised, get title insurance, usually they charge an application fee, and all the other closing costs associated with owning a home). These vary depending on your state of course. And that's on TOP of the $3500 charge which is just for the "software," basically a fee for setting it all up.

In addition, they are basically just moving all your money around from your paycheck to the savings to the line of credit to the mortgage to confuse you into thinking this is something "sophisticated" that you can't do on your own. Even if it worked, it would only work IF you spend much less than you make. It's just like putting all your bills on a credit card and paying it off in full every month. The reality is that most people will end up carrying a balance.

Why do you think a bank would help you do this if it really simply helped you pay off your mortgage faster?? They are getting thousands of dollars in fees from you to set this "program" up plus interest on the line of credit balances plus interest on your mortgage. It's also a slick way to get you to move ALL your business to them - the mortgage, savings, lines of credit, checking, etc.

In addition there is all the downside to locking this kind of thing in. What if you don't WANT to use every dollar of discretionary income to pay down your mortgage in one, three, or 10 years? What if something happens down the line or you realize you're not getting ahead because it's harder to track your money when it's on a line of credit and the balance is only growing?

Sorry, this is just a bad deal, and a horrible attempt at hiding the fact that you were either paid to make this post, or you have an affiliate relationship. These things are as shady as can be.

If you want to pay your mortgage off more quickly, you need to send more money. If you want to minimize your interest... refi at a lower rate.

Also, don't do the biweekly mortgage stuff. It works, but you can do it yourself for free, and accrue your own interest. Have half of your mortgage direct deposited into a money market account each pay period (if biweekly), and then have it auto paid with a little extra from your anticipated interest. I do that with my big three payments (mortgage, car, student loan), and it gets me a little extra interest. Then, at the end of the year, I also get an extra payment for each, and my pay period to pay period cash flow is more even.

Spent a good 2-3 hours reading this and another of Julie's post. Great info and thanks for sharing your ideas Julie.

I enjoyed reading Tri's posts and JimDaGeek's too.

I'm overwhelmed with this wealth of info, but here are my points:

1. It appears sensible to reduce as much of your principal balance as you can afford, if your interest rate is higher than if you can invest that money (opportunity cost).
2. The thing with these accelerated payoff programs or Julie's DIY program or investment is, how many people actually will stay in their home for the next 30 years? or even 15 years? Probably not many.
3. How does the program work with a recessionary economy and where home values are less than the loan balance?
4. No one can say anything is certain anymore. I think you do what you think is best with the info you have. Many Baby Boomers are helpless financially as they see their entire life savings wiped up to 40% in just one year! Diversity of plans is a good idea when it comes to wealth building and debt elimination.
5. Time horizon is important either with investment or accelerated payoff. Someone about to retire and has a huge mortgage vs a recent grad with a new home & career will not utilize the same strategies because their goals are different.

I would like to propose a different perspective on this discussion. After reading this post for an hour, I can tell I may want to go back and read the rest in more detail. I am biased since I sell the Money Merge Account.

I think the product is wrong for most of the people on this thread. They apparently are happy to deal with budgets, spreadsheets, and calculation each and every month over and over again.

I propose that the Money Merge Account is for a different customer, like my wife and I. We have other things to do that get in the way of planning our next three months over and over again. My income fluctuates so I would have to adjust the calculations each month to reflect changes to income and timing differences. The spreadsheet method would just take too long and too much time for some people to stick with it. The Money Merge Account dynamically adjusts to changes whereas a spreadsheet will need more manual asjustments.

Lets use the iPhone as a perspective enhancment. When the iPhone came out people could have said "I already have a cell phone and a PDA, why would I need an iPhone?" or maybe they still make lists on post it notes and were like "Why do I need a smarter phone that takes notes, I just need to make phone calls?" When they came out people that bought them were excited to get multiple devices into one device that was easy to use. Having a phone, camera, PDA, and internet device all in one was valuable to people--if it worked well. Now with the iPhone application business booming people a learning all sorts of new things that the iPhone can do for them or that they can play with. I'm not talking about turning your phone into a lightsaber from Starwars but finding nearby restaurants or looking up star maps at night. Things that for the right person provide significant value.

All of this hinges on two questions of "does it work? and Is it easy to use?" you see the customer for MMA is more interested in will it work for me and will it be easy to use. Many people on this thread apparently think what they were doing was working and since they were doing it that is was easy. What is easier than continuing to do what you already do?

Now put yourself in my shoes, I did not understand all the algorythms that go into mortgage amoritization, interest cancellation, time value of money, statistical choice permutations, opportunity costs evaluation, and marginal analysis. But what United First Financial proved to me was that the MMA was easy to use and would work. I don't understand how the iPhone makes calls or how to program my own iPhone application nor do I claim to teach people how the MMA works so they can do it themselves. I just want to help people get the result- a faster mortage or debt pay off. I don't claim that it is the "best" choice when considering investments. I think it will continue to do exactly what they promise for people that want that result in a way that changes their life very little. So is it best for people? that depends on your situation and your goals. Is it a great tool for people? yes.

Your iPhone example is spurious because you don't need spreadsheets or calculators to pay off your mortgage. Like you don't need a computer to run a budget. Just take the extra cash in your checking account each month and send it to your bank along with your mortgage payment. You will need a HELOC as a backup if you run short, but that gets paid off before you send any extra money to the bank.

That's it. Sure, you can use spreadsheets to play what-if, or spend $3500 on MMA to play what-if. That $3500 will cost you over $16,000 in extra interest and 16 months on a 30-year, 6% mortgage.