Yesterday I wrote about my research on a multi-level marketing company called United First Financial. My problem with the company is not that what they’re selling isn’t good or doesn’t help people. The plan can help people pay down their debt faster. I just don’t believe handing over $3,500 for something you can get for far, far less makes sense.
The banking product utilized (mortgage accelerator loans) is available to consumers without this big fee. For a few hundred bucks up front, plus a very small annual fee (less than $100), you can get this product from a bank or mortgage lender. No need to shell out $3,500 up front!
And the computer software that UFF lets you use for the $3,500? It’s a complete waste of money. It’s nothing more than a fancy spreadsheet that tells you which debts to apply extra money to. With a little bit of financial education, when you have extra money, you’ll know exactly which debt to apply it to… no $3,500 fee necessary.
I’m into providing value, so I’m going to show you how to pay off your 30 year mortgage 19 months early. And I’m not going to charge you a cent (unlike United First Financial). Here we go…
You have a 30 year mortgage with a balance of $200,000 and an interest rate of 6.5%. Your monthly payment is $1,264, and you will pay it off in exactly 30 years. Over that 30 year period, you’ll pay about $255,000 in interest on that loan.
To save almost $20,000: Take the $3,500 you were planning on paying United First Financial. Pay it to your mortgage company as an additional payment right now. You will pay off your $200,000 mortgage 19 months early. Over the 30 year period, you will save $19,714 in interest. No catch. No big up front fee. Free money for you because of my free advice here.
Add to that the mortgage accelerator product you can get for a pittance from a bank (mentioned above) and if you use it correctly, you could save even more in interest. And you still don’t have to pay anyone $3,500 to do it!
27 May 08 at 11:46 pm
I am an agent for UFF and I am really impressed with this program. I bought a house one year ago in CA and lost $138,000 in value already. I am on an interest only for 7 years and I will break even and make up the $138,000 loss in 7 years. What other program can help me do this? This is the only answer versus short selling, foreclosure or bankruptcy. This program is ideal for those on fixed incomes, little disposable income and even those or will little or no debt. This program is a must and there is no other program out there that can even come close to this one.
28 May 08 at 7:39 am
Anna - Are you telling me that you are so stupid that you needed UFF to tell you that the way to pay down an interest only mortgage is to pay more than the interest each month? I refuse to believe that people are that stupid, but as evidenced by your comment, apparently they are. I think maybe we need to take my friend Zac’s suggestion when handing out mortgages:
http://www.walletpop.com/2008/05/03/mortgage-customers-dont-know-what-theyre-doing/
14 Jul 08 at 10:30 am
I liked the illustration regarding plopping down the $3500 onto your principal, and saving about $19k. What I didn’t like is the other idea of using “mortgage accelerator loans” …”for a few hundred bucks up front, plus a very small annual fee (less than $100″.
Why pay the lender extra fees? How about this:
Pay an extra amount each month that applies to the principal? If your payment is $1264 per month, round it up to $1300 (an extra $36/month). Increasing your payment by only $36 each month will reduce the term by about three years and save about $20,000.
Another option… instead of making a monthly payment, send in half of your payment every two weeks. This in effect is similar to making an extra payment every year because you will make 26 half payments, equivalent to 13 monthly payments in a year.
Both of these examples do not require annual fees. If you can afford the annual fee plop that down on your mortgage too!
06 Oct 08 at 11:03 pm
I read the United First Financial website, and this is how I understand it — please correct me if I’m wrong. When you get your paycheck, you deposit it into the “Money Merge Account” at which time your mortgage is immediately paid down be the amount of the deposit. After that, you pay your bills, etc from that account, and any remaining amount stays paid against the mortgage principal.
So it sounds to me like the difference between doing that and just making extra payments, is that if you need the money, you can get it back out. Right now, if I pay extra toward principal, but then find I need that extra money in a few months to pay for something else, I can’t get it back out from my mortgage.
I currently keep a “cushion” in my checking account for unexpected expenses. If I could keep that cushion, but while doing so have it sit against my mortgage principal that would be great. I’m sure it’s something that isn’t as expensive as United Financial’s product, but how do I get that, and what is it called?
07 Oct 08 at 7:49 am
Pete - It’s called a home equity line of credit, which is what UFF uses. Your paycheck goes against your mortgage, but as soon as you need the money to pay bills, you’re drawing off the HELOC, which almost always has a higher interest rate than your mortgage. Our experts have run the numbers if you’ll take the time to poke around a little…. This money shuffle likely saves you about $15 a month in the best case scenario. For most people, the money shuffle will save them $2 or $3 a month. The annual fee for the HELOC often exceeds those savings, so you’re still behind even if you don’t pay UFF for their software and try replicate the system.
07 Oct 08 at 9:08 am
Pete, I’m about as risk-averse as people get. I kept a cushion in a savings account. How much is up to you. I kept enough in there for two months of expenses (probably too much), plus at least $1000 in chequing because that amount cancels my transaction fees (which would be a lot more than the interest I could earn with $1000).
Tracy is right that you can open a HELOC, and just not use it. Keep it for a rainy day. Any of the above approaches will beat the MMA, mostly because you avoid the $3500 boat anchor, and partly because borrowing from a HELOC at a higher rate of interest to pay a low interest mortgage violates math and common sense.
07 Oct 08 at 11:41 am
Got it! Thanks for the info. The way they make it sound on their website, the deposit just goes against the mortgage and you can pull it out again when you need it — so I assumed that it was the same interest rate. I’m familiar with HELOC, though these days, I’ve had friends who’ve said that their line has just been turned off/ pulled right out from under them. We have a pretty big mortgage payment for our 3 unit bldg (6,700/month for the interest only) so I’d like to pay it down early as much as possible, but I’m also trying to keep cash on hand for emergencies in this shaky economic environment. I’ll check with my bank on the HELOC rates and see if that makes sense for us for the rates.
07 Oct 08 at 1:02 pm
The other important point in this discussion of risk and how much cash to keep on hand, is that the MMA user has zero cash on hand - only debt and access to more debt.
Like I said above, you can keep access to more debt in a HELOC (in the second position), and just not use it until you have to. I had a HELOC for my first mortgage, because there was a “sale” on HELOCs for first-position mortgages and we could get a better rate (4.4%). We never borrowed against the HELOC (advances were charged at 6%), though the bank obviously wanted us to.
(In case of foreclosure, the mortgage or HELOC in the “first position” is paid first from the proceeds from the sale of the property, then the secured loan in the “second position”, and so on.)