Speeding through your mortgage
Now that many of you have crunched the numbers for accelerating your mortgage payoff, I think you are ready for a quick lesson on speeding through your mortgage. Now, I am not saying you should speed through your mortgage but there is a program available that helps you pay off your mortgage very quickly (approximately 10 years) so let’s see how it works.
I thought it would be fun to review the MMA (Money Merge Account) program from United First Financial (UFirst). The company has a website with content that includes the MMA Intro 101 video (note: this video has been removed from the UFirst website) and an FAQ section (note: the FAQ section has been updated from an earlier version).
Very briefly, the UFirst program involves obtaining an ALOC (advanced line of credit aka HELOC or home equity line of credit) and running all your financial transactions (checking, savings) through the ALOC. That is, you write checks from the ALOC account and designate that account for the direct deposit of your paycheck. You record all of your transactions in the MMA software and then the MMA does its calculations and tells you what actions to take in regard to the timing of payments.
So, let’s consider the following question and answer on UFirst’s FAQ:
Q. Why can’t I make extra principal payments to my primary mortgage and achieve the same results? A. Simply put, the mathematics behind MMA present a sophisticated process that has a substantial financial benefit over increasing your monthly payments…
Here are the assumptions for the Jones (the couple in the video illustration), who have developed a budget with their UFirst agent and discovered that they have $1,000 per month in discretionary income (typically defined as money left over after essentials such as housing, food, and transportation):
- Primary mortgage of $200,000
- 30-year fixed rate mortgage
- 6% interest rate
- Monthly mortgage payment of $1,199.10
- Extra monthly payment on principal of $1,000
- Program cost of $3,500.00
According the video (approximately 20 minutes in), the Jones’s can pay off their mortgage loan in 10.417 years.
However, if you speed through your mortgage Julie’s way (apply the MMA program fees to the principal payment in the first month and then apply the $1,000 to the principal every month), you can pay off the loan balance in 9.917 years.
Check out the attached amortization schedule (enhanced based on recommendations from reader Jim).
Edited December 27, 2008 to reflect changes in UFirst website.