Originally posted 2007-07-17:
I did just a little more digging on the uFirst Financial Money Merge Account (MMA) presentation that I saw last night. It seems as though my initial thinking was close, but with one major flaw: though a little benefit (in terms of mortgage payoff time, not necessarily net worth) might come from depositing your check directly in the HELOC, most of the accelerated payoff apparently comes in the old-fashioned way: brute-force paydown, with–literally–every spare cent not otherwise used going to the mortgage. As noted in my prior post on the matter, I don’t necessarily see this as a good thing–the opportunity cost can be quite high, and your net worth will most likely suffer for it (though admittedly, situations will vary).
While I can’t claim to have fully reviewed these sites, I think you’ll come away knowing a lot more about the issues involved in payoff-acceleration schemes.
First, a site that looks like a great resource–though they could probably have benefited from a little help from an editor. Integra Mortgages describes what they see as “financial voodoo”, and offer worksheets that they say will walk you through what’s really happening with an MMA. Since they specifically refer to a $3500 fee, I’m guessing that they have uFirst in mind.
For a wealth of information (along with a lot of noise), check out FatWallet’s forum discussion pertaining to these and a host of related subjects. For a starting point, check out drosengarden’s posts; from what I picked up, he’s a mortgage broker who almost got started selling the product–until he figured out the same thing as the site above, that the magic is basically in throwing all your discretionary income at the mortgage. Though you’d be crazy to do that, by doing so you could achieve the same results as uFirst’s program fairly simply without spending the $3500. I haven’t spent much time with FatWallet, but it looks as though they aren’t lacking for smart “financial optimizers” in their online community.
Jack Guttentag, “The Mortgage Professor”, offered faint praise for a similar scheme:
Well, it is neither illegal nor absurdly illogical, which is more than can be said for most of the quick-repayment schemes I come across.
Finally, there’re some semi-favorable comments about similar schemes elsewhere in FatWallet’s forums. These’re from early 2006, when rates were quite low; apparently, the chance to arbitrage rates was at least somewhat attractive at that point.
Anyway…as one FatWallet poster said, if you’re selling a rubber chicken for $10K and it changes people’s behavior for the better, saving them $10,001, more power to you. However, I don’t expect to sign up in the near future to pay $3500 for software telling me how to follow a simple, and IMO foolish, system.
Update:Reading on through the FatWallet thread, I came across a linked BankRate article describing a couple of similar programs with “annual fees of $30 to $60″. If you really want to go this route, it’s worth checking out the article. (In case it disappears, it references the “Macquarie ‘Asset Manager loan” and the “CMG ‘Home Ownership Accelarator’ loan”.)
Update 2 – more links:
Jack Guttentag addresses the uFirst Financial plan directly.
Tony Rose (and no, I have no idea who he is) runs the numbers.
