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