JoeTaxpayer

I usually don’t post on Sunday, so this post is going to be a bit off topic, a few general thoughts. First, I’m happy to see readership growing over the past weeks,

as well as steadily over the past 6 months.

I’ve gotten many comments, most of which are positive, all of which are welcome.

Recently, I’ve started posting about the Money Merge Account, and my feelings regarding that product. Lest this blog turn into my soapbox for ranting, I’ve decided to commit to a steady pattern of posts on Mon/Wed/Fri as I’ve been maintaining, and when I have more to say regarding MMA, I will add an extra post on either a Tuesday or Thursday. Other than that, I am trying to vary post topics, so technical, limited interest topics affecting a tiny percent of taxpayers will not appear more than every few weeks. I think there’s a need to bring those topics up as obscure as they may be. As always, your input is welcome and appreciated. Questions, and/or topic suggestion are always welcome.

Joe

written by JOE \\ tags: interest, irs, mma, money, money merge account, soapbox, tax

From Innumeracy.com:
Innumeracy: A term meant to convey a person’s inability to make sense of the numbers that run their lives. Innumeracy was coined by cognitive scientist Douglas R Hofstadter in one of his Metamagical Thema columns for Scientific American in the early nineteen eighties. Later that decade mathematician John Allen Paulos published the book Innumeracy. In it he includes the notion of chance as well to that of numbers.

From “Money Merge Advantage“, an MMA agent’s blog:
“In FACT… The software alone could still beat the 2nd scenario (putting the $300 discretionary to the mortgage each month)… WITHOUT using that discretionary income AT ALL. Yes, SERIOUSLY!”

If you have no idea what Money Merge Accounts are, or what I am talking about, please see my Money Merge Links page for references and then read on. In the blog I reference, the example starts with $250K, 30 yr, 6.5% mortgage. Then we are told a bi-weekly will provide some $75,800 worth of interest savings. No problem there, a bi-weekly is like paying 8% higher than the required monthly payment, usually in the form of a 13th payment snuck in once a year. The examples then offer that $300 more each month will cut the mortgage down to 19 yrs 8 months, which I still follow. But then the blog writer claims that with no extra money, beyond the $300, MMA will cut the mortgage to 14 yrs 4 months! This is beyond the wildest claims I’ve seen so far, and completely beyond reason.

Lastly, came the quote above, suggesting that with no extra funds available, the HELOC shuffle alone can produce savings greater than a $300 monthly principal payment would achieve. This raises new and troubling questions. The couple in the example have a net income of $3800/mo. If their HELOC were 0%, and they borrowed this $3800 at the beginning of each month, and paid it back at month’s end, it would gain them just under $21 per month, nowhere near $300. And no HELOC offers a 0% interest rate. At best, the HELOC is a percent or two under the fixed rate mortgage. This is simple math, folks, and no “sophisticated algorithms” are going to change the fact that 1+1=2 or that the best one might squeeze out of their HELOC shuffle efforts is $20-$30 per month, certainly not $300.

Joe

written by JOE \\ tags: HELOC, income, innumeracy, interest, jferheart, mma, money merge account, Mortgage, saving, sophisticated algorithms, UFF

A couple weeks back in a post titled Money Merge Hyperbole, I discussed the Money Merge product offered by UFF, and focused on the fact that in their published example, it’s clear that the use of a HELOC doesn’t provide any incremental savings. A kind reader points out on his web site, My Debt Elimination Calculator, that HELOC can provide some savings depending on a number of factors. Among them, the time of the month that income comes in, when bills are due, and the relative differences in HELOC interest rate, mortgage rate, and checking account interest. I agree with this. I’m from the “numbers don’t lie” camp and Greg offers numbers to back up his comments on that post. In his examples, the HELOC system saves $2550 more than the prepaying method on a $100K mortgage. (This is for the more realistic example where the borrower doesn’t have the (unrealistic) extra $1000/mo, but a more reasonable amount which will reduce the mortgage to 24 years from 30. In this case, Greg’s software is capturing over $100/yr in extra savings by using the HELOC. I certainly can’t knock a system that beats what I saw on official MMA sites but only costs $30. Take a look through the link above.
One point I must concede is this: It’s easier to make a purchase (waste money) when it’s from cash in the bank than when you are taking that money as a HELOC withdrawal. Maybe that’s what the MMA people are trying to say, but that message is lost to me among all the hyperbole.

I will close with this question and thought. If UFF, with the chance to put their product in the best light, cannot provide an example with real numbers which shows any savings beyond that of the prepaying (which I can illustrate with a free spreadsheet) yet create this illusion of ’sophisticated algorithms’ taking millions of dollars to develop, how do they justify a $3500 price tag? On the flip side, you have been introduced to Greg, (whom I just met via my blog) a Computer Scientist who was able to write code providing a solution that actually impressed me looking at his example. I’m sure this debate isn’t over.

Joe

written by JOE \\ tags: debt elimination calculator, free spreadsheet, HELOC, interest, jferheart, mma, money, Mortgage, Savings, sophisticated algorithms, spreadsheet, UFF

In a post titled “Money Merge Account Evolution” we are subject to hyperbole, but no numbers. No proof. The latest version of MMA™ claims that if one has a mortgage along with ten other debts, they somehow need to consider 3 million possibilities before paying a dollar to any of these debts. Wow! Did he say 3 million? Is my rule “pay the highest interest rate credit card first, until it’s paid off” too simple? Should I spend even a millisecond deciding between paying my 18% credit card or prepaying my 5% mortgage? And do I really need software to help make that decision?
To be clear, I don’t suggest that MMA™ is a scam. It certainly is not. It does exactly what it claim it will do. It also lags the math that a simple spreadsheet can offer. A beautiful site called “Discover Money Merge” offers an example, one that spans the just over 10 years that MMA™ will take to retire a 30 year mortgage. Please view their example, I won’t copy their image to avoid any copyright issues. Now look at the year end numbers from my simple spreadsheet (this is for a 30yr, fixed, 6% loan. Their assumption and mine is an extra $1000/mo is available to pay the mortgage.)

Now compare this to the example linked to above. My spreadsheet - total interest paid, $67408.24, their example, $70,428.19. Where is the savings? Why didn’t the use of the HELOC they recommend along with the extra risk of borrowing funds short term at a higher rate provide any savings at all? If you are completely new to this topic please see the link list above for more details. More to come, I’m sure. If you’d like a copy of the full spreadsheet, please submit a comment with your email address and I’ll send it along.

Joe

written by JOE \\ tags: 30 year mortgage, Credit, free spreadsheet, HELOC, interest, jferheart, jubilee project, loan, mma, money, money merge account, money merge account evolution, Mortgage

I’ve gone on in many posts about the subprime mess. Pages and pages along with multiple links. But Randy Glasbergen managed to summarize in one insightful cartoon the source of our crisis;

Note: The above is from “Today’s Cartoon by Randy Glasbergen”, displayed with special permission. For many more cartoons, please visit Randy’s site at www.glasbergen.com
While there, you are invited to support his site by visiting his Cartoon Gift Shop at http://www.cafeshops.com/glasbergen for mugs, t-shirts, calendars, framed prints and other fun products featuring cartoons from his website. Me, I have a day job, and rely on the kindness of professional cartoonists to provide my Saturday material.

Joe

written by JOE \\ tags: calendars, cartoon, lend, mma, mugs, prints, professional cartoonists, randy glasbergen, Subprime

First, a link to The Simple Dollar’s blog post on MMA, which generated more comments than I’ve ever seen on one posting. (Careful, this can take some time to load)

Get Rich Slowly also had a discussion that generated much interest.

WiseBread also gave a review of MMA with a similar conclusion to the one I reached.

United First Financial, who created the MMA concept, offers a video to explain the approach.

For some interesting hyperbole Vision Force 21 is an agent selling MMA.

Mortgage Acceleration LLC also an agent for MMA.

Integra Mortgage and Investment has another series of links with MMA comments and observations.

BankRate.com’s article on MMA

MSNBC’s “What’s a ‘mortgage accelerator’?”

CNBC’s interview with author Rick Edelman

Clark Howard fields a question on MMA

Dave Ramsey’s reaction to MMA

Another Dave Ramsey conversation (transcript)

An article by ActiveRain

Travis Mitchell kindly offers a years’ example of MMA in action, and in response I offer my own money merge account spreadsheet. I would be happy to entertain any intelligent dialog on the numbers presented by the two of us.

A page containing a summary MMA example which many agents link to.

The web site Money Merge Advantage, which inspired my post Money Merge Innumeracy.

The Age (an Australian site) has a great article, “Smoke and Mirrors“.

Kiplinger’s “Don’t Fall for This Mortgage Pitch”

(Please send a comment if you have more links to suggest or if you’d like a copy of my MMA spreadsheet. The sheet will let you see your own numbers, and will help you decide for yourself.)

JOE

written by JOE \\ tags: Finance, interest, Investing, investment, mma, money, money merge account, Mortgage, mortgage acceleration, mortgage accelerator, Retirement, spreadsheet, wealth

In the March issue of Smart Money, there was an article “10 Things Your Tax Preparer Won’t Tell You,” which, like many articles in this series takes a shot at the least reputable people in a given profession. What caught my eye reading this story was this one sentence “On average tax preparers make more mistakes, and costlier ones, than Josie Taxpayer does.” I quickly Googled “Josie Taxpayer” and found two results, both referencing Joe and Josie Taxpayer, as the Smart Money story had not hit the web yet. I found the avoidance of the phrase Joe Taxpayer interesting, as I’m sure it was intentional. Just my random observation today.

JOE

written by JOE \\ tags: Finance, foreclosure, mma, Mortgage, mortgage acceleration, pre-pay, Real Estate, sub-prime loans

This month’s Consumer Reports has an article “Your mortgage, It rarely pays to prepay“. They think it doesn’t, suggesting that since the stock market (measured by the S&P) has averaged 10% per year over the last 20 years, that it would make financial sense to choose investing in the stock market over pre-paying your mortgage. On one hand, there’s a neat logic to this. But, as I posted in my blog article Disappointing Results, we see that despite the 11.8% return of the S&P cited by the study, the average equity fund investor only saw a return of 4.3%. In that case, CR might rethink their numbers and their blanket statements offering what may be unsound financial advice.

Whatever you decide, the decision has to be based on your individual situation, your risk tolerance, and investing style.

JOE

written by JOE \\ tags: Finance, foreclosure, mma, Mortgage, mortgage acceleration, pre-pay, Real Estate, sub-prime loans

I’ve finished up another article for my main site, this month titled BiWeekly Mortgages. I’ll give you the punchline here. I have no objection to paying one’s mortgage down faster if the rest of their investments and debts are in order. Why pay down a 6% or 7% mortgage faster when you owe money on a 15% credit card?
What I do object to is paying a third party or your bank an extra fee plus monthly service charges when you can do this your self. I mention other mortgage acceleration programs such as Money Merge Accounts, which I’m still researching and will discuss here or on the main site in the near future.
JOE

written by JOE \\ tags: Finance, foreclosure, mma, Mortgage, mortgage acceleration, pre-pay, Real Estate, sub-prime loans