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

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

Earlier this month, I mentioned the Money Merge Account program on my feature site, and, as frequently happens, I find a magazine article coming to a similar conclusion.

The May issue of Kiplinger’s Personal Finance magazine has a brief article titled “Don’t fall for this mortgage pitch.” It’s a pretty brief article which again questions whether even prepaying at all is a good idea, but concludes with this punchline; “Salespeople challenge whether you’ll follow through on your own - as if spending $3500 for software will ensure that you’ll use it. Tell that to couch potatoes whose high-end exercise equipment gathers dust.” Amen to that.

I’ve also added links to highly trafficked discussions regarding this topic, and also written a stand-alone page comparing one MMA agent’s example to my own approach using a spreadsheet. I don’t know what surprises me more, that the shortcoming of such systems is so obvious, or that people are so desperate they’ll pay $3500 for something they can do with a free spreadsheet. I am happy to send a copy of my MMA spreadsheet to anyone that requests it.

(updated 5/4 - I added the link to the article above as the May issue of Kiplinger is now accessible on the web.)

Joe

written by JOE \\ tags: bi-weekly mortgage, Finance, foreclosure, Investing, jferheart, money, money merge account, Mortgage, 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