More on Money Merge Account

[71tr]

One more time, I am not a proponent of the MMA.  If you read the first post to this thread you will see the author was very specific in his question and we kept the discussion limited to that question.  

Please don't interject the details or emotions of the last thread into this discussion ie.. $3,500 software costs, spending money on latte's etc.  If you read the original thread closely you will see I too was a detractor; not of the concept but of the companies charging excessive fees for the service.

Now that we've reached the point of pro vs con I think I will recuse myself of this topic.

[christopher w]

71,

I meant no disrespect. I apologize if I gave you that impression. I was just offering an opinion, and trying to get a laugh.

[71tr]

christopher w;

No offense taken but thanks for the thoughtful response.  One of the drawbacks about forums, our written words might imply something unintended.  Anyway, laughs are always good here and I get your point.

[markvernon]

Hello and welcome back old and new.  Don't recuse yourself yet 71tr!

I started this thread because I wanted more discussion on the central theme to MMA.  Namely, what I try to specify in message on 1/22 about $7,000, 5,000 and 2,000.  Interest cancelation.  I'm pretty hooked that there is a sound strategy involved, but not yet an agent of MMA or a user.

For those who want to stay focused with me on this concept, at this juncture I'm not planning to talk about benefits of any software whatever the cost, nor to discuss opportunity cost of whether it is 'best' to pay down a loan (typically a mortgage) with our extra $200 (eg) monthly or to invest it in say stock mutual funds, nor to discuss if we should invest that spare cash in a tax deductible vehicle of IRA or 401k.  It is not about paying off more expensive loans first. It is not about optimal consequential net asset growth.  None of those discussions for those who are truly on board with the intent of this thread.

OK - some other basics to keep us on track.  It is not refinancing.  Again this does not propose refinancing into any mortgage or any giant heloc.  Dispel that thought.  Have I got your attention.  That is very clear from watching the homeoffice  (United First Financial) presentation.  A must watch (30-40mins) if you are going to grasp and participate on task.

It does assume that we have some money left at the end of the month.  No surprise there.   A new or existing relatively small heloc is required; so current position is some equity needed.  WHY this heloc thing?  THE central point.  Only a line of credit (just to be clear for some this is different than a home equity loan) has the facility of the outstanding balance immediately reduced by a posted payment any number of times during the month.   The balance will then rise if draws are made, no surprise.  Result is a monthly average daily balance which is used to calculate our interest due.

First stage then is draw some cash out from the heloc. (Comments on what we do with that money later).  Interest is accruing.  Now, for a moment, take us over to our regular checking account in which most of us have our paychecks (direct) deposited. That earns us typically from 0% to 2%.  Second stage is make a deposit to your heloc in the amount of your full paycheck.  All the days that that money is sitting there, albeit a short time before we need to use a heloc checkwriting feature to send in our car payment or daycare, etc, etc., it has reduced the balance on the heloc and consequently the average daily balance on which the interest is calculated.  Please accept for a moment that this amount of interest saved is greater than the interest earned, if any, on our high street checking accounts.  If so we have used the lenders money for less their planned cost to us by no change in our spending habits, just a redirection of our money.  Or what I can relate to is, we are floating their money from the beginning of the first month and canceling interest due on it during the month as paychecks are deposited.  Of course there are a number of in and outs to & from the heloc.  Month after month this becomes powerful.

I'm looking for somebody to counter that theory or else I'm going to operate that way very soon.  Probably starting without any MMA software, just to see if it fits the family lifestyle.

Obviously then, what's the point unless we are doing something with this float or with this loan we have got at an interest cost less than it would normally appear should be paid each month (read interest cancelation).  The things we could do is invest it in one or two of a number of choices that take monthly contributions (dollar cost averaging). I relate this to investing on margin.  OR,  to close this loop on this MMA story, we could .....wait for it........you know what I'm going to say......yes, that's it.......... you've got it........come on somebody jump in,  I know Jamie would if he was reading this,  71tr you commented you were almost a proponent,  christopher w I know you were trying to joke but I'm serious on seeing that people get the theory, that I think I've grasped fully, in order to discuss it.......here it is.....use it to pay extra to principal and save interest by a much larger amount than the heloc with its now partially canceled interest costs us.

So help me on the use of heloc theory.   Remember, secondary is how we use the float but a non-sophisticated use would be to accelerate the paydown of primary mortgage.   Hence, the MMA claims, which nobody is disputing, that 18 years or more could come off a 30 year note.

APPENDIX
Canceled interest means it should not matter that the heloc might be at a higher quoted rate than the primary mortgage.
UFF independent agents sell the $3500 software to help guide best timing and amounts to draw from the heloc and pay to principal.
A self done spreadsheet presumably could guide someone in a similar fashion.
Running an agents analysis will do nothing for comprehending the concept but only to see results of chopping off years and resultant interest saved on mortgage.
First draw from heloc is the $3500 to be sent with application to UFF to get access to training and support of MMA web based program.
Observation - unlikely that selfdone spreadsheet can incorporate as many variables of life's financial picture that MMA software can and confidently get recommendations on timing.

Later, Markvernon

[DeeinAustin]

Didn't we already beat this horse nearly dead already?  
http://www.reiclub.com/forums/index.php?board=26;action=display;threadid=20328;start=msg103596#msg103596

Why are we back to the same damn topic again.   ???

I guess the people who were advocates in the last thread didn't make enough money...soooo....let's keep on digging the hole on this one unless we can lock the thread.

[markvernon]

Hi DeeinAustin,

Do you have anything constructive to show where I am misunderstanding the concept?   Your note was sent whilst I was still writing mine.  Any chance of you really building on the core as I describe and commenting with math facts.

Thanks, Markvernon

[henryinma]

I don't think anyone is disputing anything because you haven't provided any numbers to dispute. So far you've proposed theory but haven't put actual numbers to that theory.

From what you're telling me, it sounds like you're trying to use the additional effect of daily compond interest to reduce debt, however the effects of it aren't that great on a yearly basis. For example, a 100k loan at 6% with monthly compond interest, interest payment after a year amounts to $6167.78. With daily compond interest, the interest payment is $6183.13.

As for depositing their paycheck into a checking account, why don't they open an orange account and get 4.5% interest on their money? Then they're only getting a 2-3% net gain on their money. Also as the money is only there for one month or less, the effect is limited to making a single monthly payment in advance over the course of a year assuming the banks uses the maximum float period for the year. (ie, you get paid on the 1st and don't send in the money til the 30th so the money is sitting there just earning 4.5% for the whole month)

Can you recalculate the effects of MMA with this scenario? I would like to know the net savings based on a 200k loan at 6% and a 40k heloc at 8% and assuming a payment of $200 extra per month. Assume the $200 sits in an account paying 4.5%. I'll build this in excel and see if we come up with the same numbers.

Normally to pay off a 200k loan at 6% in 8 years instead of 30 would require you to come up with $2628 a month instead of $1199 a month. How much extra are you saying you would need to add per month using MMA to do the same?

Please don't lock the thread yet. I'd like to see the hard numbers and I'll spend a little time running the calculations. I don't recall seeing any numbers in the last thread which made it very easy to go back and forth without saying anything.

[DeeinAustin]

Hi DeeinAustin,

Do you have anything constructive to show where I am misunderstanding the concept?   Your note was sent whilst I was still writing mine.  Any chance of you really building on the core as I describe and commenting with math facts.

Thanks, Markvernon

Please note my criticisms in the other thread, which states what I stated here. That the only advocates for MMA accounts seemed to be people selling them.

I agree with Rich and don't see the purpose of another really long thread about the same thing we all went back and forth about it another thread just recently. If there's new info, feel free to provide it. If we start going in circles and it's not really adding information that wasn't in the previous thread, we're going to lock it.

A poster in the other thread had mentioned a bad experience with a particular company. Minutes later, I got a phone call from the company asking us to remove the negative information. So...it was very obvious that the posters worked for that company.

We're all here to learn, so we're open to that as long as it's not an opportunity to sell a bogus solution.

[markvernon]

Let me jump in at your second to last paragraph.  (Incidentally I was suggesting 18 years off standard 30 yr mortgage not paid off in 8 years, but no matter).

The extra amount needed would be the same in MMA, ie $2628 minus $1199.  That is because the story behind MMA is not what the extra does, or how much is needed but where you get it from.   I was hoping my essay explained that!

Also then I'm not describing MMA as trying to gain an advantage of daily compound interest versus monthly compound interest.  Notwithstanding, I'm confused when you use this in context of a loan since it works against you.

Where you get it from is in this analogy: a friend gives you $500 at the beginning of a month and wants $510 back at the end.  You use the $500 to create you $50; on returning his money you are $40 better off.   The friend is the small heloc; the $10 is the interest on heloc; the $50 is your savings in interest (highly simplified) because you put the $500 to work in the form of extra to principal.  You keep the interest cost in heloc so low because you are keeping average daily balance as low as possible by making payments to it in the form of your paycheck coming from your regular checking account/orange account, thus having the effect of canceling the simple interest due.

You do this with your friend month after month and results are huge.  It's cost you no additional out of pocket, nor necessarily any extra disciplined budgeting.  That's the beauty.
Pure maths within how a line of credit works.

You certainly should get your scenario run through the MMA analysis (remember I'm not an agent nor a user yet) but the MMA concept is not addressing what possible better deal it is to earn 4.5% on $200 per month, as opposed to putting it towards principal, rather it is addressing could all your other income in between you paying your other monthly bills sit in a heloc that you have recently drawn some money (extra/float) from and eliminate some of the interest due.  It is categorically saying it could and this give you a cheap new loan month after month.

Have you seen the United First Financial 40 min presentation?  Google them.

Markvernon

[markvernon]

DeeinAustin & Rich,

Respectfully you two are the only ones who have put something strong in this thread.  Right now it's only henryinma and I having a sensible discussion.  Neither of us sell MMA.

You restate your criticism about only salespeople advocate it.  That doesn't necessarily make it bad.  That is your only criticism.  You don't offer constructive analysis as if you are informed on the subject.

It's really quite simple.  I was just looking for some input as to whether the maths or workings of a line of credit is sound.

Thanks,  Markvernon

[henryinma]

If I understand you correctly, this sounds like a shell game and completely falls apart upon closer examination. It's mixing apples and oranges. (Pun intended?)

The problem here is the $50 you think you have. Tie this all down to the end of the month. At the end of the month, you don't have $50, you have $50 in savings over the life of the loan, but you don't have $50 in your pocket at the end of the month. Two totally different things.

This really sounds like it violates the conservation of energy principle. There must be some other financial equivalent saying or maybe it's just basic accounting like balancing the books at the end of the month. I don't see how this ever balances out.

From the way you describe it, if I borrow $500 from Heloc at 8% and use it to pay off another loan at 6% right away, I don't think I've saved any money, I've just converted my 6% loan to an 8% loan!

As of yet, I don't think your essay explained anything. What if I just skipped the step of borrowing from the heloc to convert my primary into a heloc and just used extra money to pay off heloc? What's the effect then? I would think it'd almost be the same. The more I hear about this, the more it sounds like a rube goldberg method to have fun with finances.

Have you calculated the value of the float? It's minimal. I think the math would be something like this, $200 a month for a year, assuming there's no float at all is probably worth the interest of $2400 divided by 2 and multipled by the interest rate on the mortgage which would be either 6% or 8%. So that's $72 or $96 at the end of the year. So if you paid $3500 for some software that could save you $72-$96 a year, it's not a very good investment. Of course if you were paying more than $200 a month, it might be better, but nothing you've said seems to indicate why you need the software and it's something that can be done on your own. Most online banking system allow you to schedule automatic payments by a certain date. Just set it up and go.

[DeeinAustin]

markvernon,

We're just posting our opinions about them and pointing to the other thread for further information. I was open to the idea until I saw that the posters who had started the other thread were clearly selling the idea and working with the same company that one of our other posters identified as being part of a scam.

A poster made valid comments that described exactly what the companies would tell you to sucker you into using one of these, but we had to pull them each time because the shill posters were calling and emailing the moderators to complain.

After that, it will take some of us time to see whether MMAs are anything other than a way to get ripped off.

[DeeinAustin]

Mark R., whoever you are, please don't call me at work on this thread. I told the Money Merge/Seasoned Credit line people the same thing last time, which is that they can post any questions here. Since they wanted us to remove their name from threads, we did so, which we could have done without them calling me.

I hate to disappoint, but the last thing I want to discuss during my busy day is a thread about money merge accounts. :-*

Feel free to continue your discussion here.

[kdhastedt]

Feel free to continue your discussion here.

The thread is locked...only Moderators/Administrators can post to it...

Keith