What does Dave Ramsey think about United First Financial
In my book, Dave Ramsey is hands down one of the best and most credible experts on getting out of debt. While I disagree with him on a few technicalities, we’re on the same page for most of what he preaches. The guy talks sense.
So when United First Financial representatives scammers began emailing me, calling me ignorant, stupid, and uneducated because I don’t believe in their product, I decided to research what my beloved Dave Ramsey has to say.
It’s easy to see how people can get sucked into this program. Well-educated and money-savvy people are proclaiming that this is the best thing since sliced bread. “The numbers work,” they say. Well I’m not disputing that the numbers can work if you follow the program.
What I do dispute is the need to spend $3,500 on it. This is a complete waste of money. If you have $3,500 sitting around, use it to pay down some debt now. If you have to use a credit card to pay $3,500 to UFF, then you’re in even bigger trouble as you just added debt to the debt problem you’re trying to solve.
Dave could make it easy for me by having something on his site about UFF. Wouldn’t you know it… the site has an audio clip from a caller asking about the Money Merge Account. Dave is adamantly against the program and the software. He says the fee is a waste of your $3,500.
Dave also points out that UFF’s claim that you can pay off your house in 8 years without changing your lifestyle is a lie. Of course you have to change your lifestyle if you want to apply more money to your debts and pay them off early!
He says that technically the program can work. But that it’s really the change in lifestyle that is needed to pay down the debt. There is no “magic pill” to solve your money problems. It takes hard, consistent work to pay down debt, with or without United First Financial.
Dave Ramsey’s site also says this:
This is basically getting a home equity line of credit and buying some $3,500 software that helps you pay off your mortgage faster with no change in lifestyle. There is no magic software. Software doesn’t enable you to live on less than you make.
That’s up to you. If you make $4,000 a month and want to put $1,000 on your house debt, you have to live on $3,000. You have to change your lifestyle. Does the system work? Yes, so we can’t call it a scam. But you should make a budget and do the work yourself. I hate that they are selling the “magic pill” idea, which doesn’t exist. Do it yourself.
There is also a page on Dave’s site that addresses “mortgage accelerator” programs in general. He hates them. Here’s what he says:
Can You Trust Equity Accelerator Mortgages?
Heard of equity accelerator mortgages that claim to pay off your home in 1/3 of the time?Don’t buy the hype!
An equity accelerator mortgage is a terrible product! It is simply a variation of an interest-only mortgage. Basically you are getting a long-term, fixed-rate loan but you only pay the interest on the loan for about the first 10 years. Essentially you are renting from the bank for 10 years. This is a disaster waiting to happen because you make ZERO progress on paying your loan down during that time. This can be devastating if you need to sell your home within those first 10 years!
Let me explain. In order to sell a home, you will incur costs such as realtor fees and closing costs. These costs can quickly get into the 5 figure range. If you’ve only been paying interest on your home, you have no equity. That means the $10,000 closing cost comes out of your pocket!
Stay away from equity accelerator mortgages. Get a 15-year fixed-rate loan with a 10 – 20% down payment. Make sure the monthly payments don’t exceed 25% of your take-home pay.
The reason Dave Ramsey hates mortgage accelerator programs is because they create more debt. And because the equity line only requires you to pay interest for the first 10 years, people run the risk of getting into bigger trouble if they aren’t paying toward the principal.
Now I’m sure UFF representatives will say, “Well if they’re not following the program it’s not going to work!” Duh. But here’s the thing… UFF doesn’t make a bad money manager a good money manager. They’re offering you the “chance” to clean up your money management skills and if you do (by following “the program”) you can pay off debts faster.
Do you really need to pay them $3,500 to change your habits when you could do so for free? You get out of debt by changing your lifestyle. You use a home equity line like what UFF promotes to help you pay down your mortgage faster, in theory. But quite simply, there’s a better way to do it. It’s called a regular mortgage and extra payments on principal.
I wanted even more information. Here’s one person’s account of what Dave has said on the radio:
For what it’s worth to you, national radio financial talk show “I’M DEBT FREE!!!!!!!!!!” guy says that this software and program by United First Financial does not sit well with him because while UFF does seem to promote the acceleration of paying down of your mortgage and the software really does do the calculations properly, UFF is also advocating borrowing money (on the HELOC) which pretty much cancels out the good aspect of UFF (if there truly is one). It’s like supporting a smoker to quit smoking then telling it’s OK to just light up and forget about quitting whenever he thinks things are falling apart.(that’s not his analogy, it’s mine. LOL)
Furthermore, he does state that there are some lies in the marketing of their software and program, but to be honest with you, I can’t remember exactly what those where.
He also stated that the software works, but it’s way over-priced and makes no sense for someone to spend money on it since…
1. You don’t need the software to perform the simple calculations it performs.
2. Given #1, why not use that $3500 to pay down your mortgage? That is the whole point of the whole program anyway, right?From what I gathered from his whole speech about UFF, he’s saying that on the surface the whole thing seems OK and good and well-intentioned, but if you look deep (and not really that deep at all if you have common sense) you will see an ugly MLM sort of set up that works by catering to the “I want everything to be easy” side of the brain of those that are bad with money and making them think that the software program is some sort of magic tool that will, in and of it’s self, cause the mortgage to be paid down just by running the software. This could not be further from the truth because the only thing that will pay down that mortgage is the person and therefore the person has to be disciplined. If the person is bad with money, then what needs to be done is a changing of the person and how they view and work with their finances. And surely, borrowing money through the HELOC certainly isn’t doing anything to promote good financial behavior.
Anyhow, that is the gist of his take on United First Financial. It’s basically a company that takes advantage of people who are bad with money and makes them think there is an “easy way out”. Just like pretty much all of the “make money from home” products sold on TV and Internet and magazine ads.
I very much respect Dave Ramsey and his advice because it’s simple and straight-forward with no fluff. He tells you how it is and how it has to be if you want to be free from the shackles of money and debt.
Take this post and his opinion of UFF for what it’s worth to you. But don’t bash me, I’m just the messenger. LOL
He talked about United First Financial and their Accelerated Equity program for a good 3-5 minutes (or maybe more) and I wish I had been listening online where I could have recorded it so others here could heard it.
Was that an accurate account of what Dave said? Take a look at what Chris Thomas, Dave’s director of national advertising says Dave’s opinion on UFF is:
And for the record, Dave already recommends a mortgage accelerator product: It’s called “write more checks to your mortgage company more frequently.”
Whether you buy into it or not, you have to admit one thing about Dave Ramsey: He’s consistent.
His message of debt freedom has stayed consistent over the last 15 years. It’s this same message that has gotten The Dave Ramsey Show to the level that it is today.
This is why I love it when my phone rings and it’s someone trying to convince me that Dave is the perfect spokesperson for their new consumer debt consolidation service or mortgage accelerator service or any other product that involves taking out a new debt product. If debt is something that Dave has been consistently against for the last 15 years, why do they think he’ll change his mind now?
My phone just rang and I answered it and the conversation started off innocently enough. The lady on the other end (we’ll call her Francis with United First Financial) explained to me that she was interested in advertising her product on our show. My first question to potential advertisers is always “Can you tell me a little bit about your product or service?” I do this for two reasons: First, I find that people like to talk about their product/service, so who better to educate me? Second, if the first sentences out of their mouth include “strip club” or “casino” or “pre-paid legal” then we really shouldn’t waste each other’s time.
Francis happily obliged to answer the question, and within 10 seconds I knew that I was being pitched the mortgage accelorator for the 12th time. When a short break came in the conversation, I politely said to her “Francis, the mortgage accelerator involves a new debt product, right?” She replied with a “Yes.” “Okay, well, Dave is very much against debt, in fact, that’s pretty much what he’s most well-known for and it’s been a fairly significant part of his message for the last 15 years, so it would be inconsistent of him to promote a program that involves a debt product, so for that reason we just can’t do it.”
She couldn’t handle it. She started telling me about her sister or her aunt or someone she knew who had paid off a loan a lot faster with the program and that’s why Dave should recommend it. I again explained the whole “inconsistency issue” and again told her that it just wasn’t something we were going to do. She called me dogmatic. I told her we wouldn’t do it. She called me snooty. I told her we wouldn’t do it. She said this was why she never liked Dave in the first place. I laughed and then told her we wouldn’t do it. I asked her if we could go both go back to work. She said I was accosting her. I told her we wouldn’t do it. She told me she believes these programs are coming from Japan to take over the mortgage industry and that Dave needed to be aware of them and their mighty power. I told her we wouldn’t do it.
Some people just don’t get it.
The message is clear from Dave Ramsey himself and others who have listened to him. He hates the program offered by United First Financial and does not endorse the Money Merge Account. A number of sites are falsely claiming that somehow Dave approves of UFF’s company/product. Some merely implied it because of Dave’s preaching on debt reduction and UFF’s supposed goal to help you do that. Others were much more blatant in their false claims that Dave likes the program.
Dave Ramsey is against United First Financial, the Money Merge Account, and mortgage accelerator programs in general.
I keep getting accused of not doing enough research. Funny. The more research I do, the more adamant I become in the belief that UFF is a horrible company, with a horrible product, and a ridiculous $3,500 fee that could be far better spent by consumers.
You can change your money management skills for free or through a low cost program like Dave Ramsey’s Financial Peace University, or with relatively inexpensive books that will teach you about better financial management.
Related Posts
- $3,500 wasted with United First Financial, per Dave Ramsey
- Fun with numbers: I can save you $19,714 (without United First Financial)
- What does another expert say about mortgage acceleration programs like United First Financial?
- United First Financial: Don’t believe the hype
- Debunking United First Financial myths and deceptions
Tracy, my understanding of these types of pages is for people to share ideas, not to be demeaning or slanderous. You can have your opinions without attaching others. The word “predatory” is a hot button these days and is generally used in reference to lending. I’m not sure what your professional background is or if you’re just a big Dave Ramsey fan, and that’s fine. Like I said, I bought his most recent book. But just like we don’t observe dental practices like we did in the 1850’s, the financial industry isn’t run the same way either. With the technology that is available today even operations are done in a completely different manner.
Dave’s a good guy, has helped a lot of people, but numbers don’t lie. Whether it be the MMA or another device that shows you a larger interest savings, enabling an individual to become a better steward of what they have been blessed with, then go for it.
Continually using the example of $3,500 will reduce your long-term interest by $20,000 is misleading. It may be correct for a few is may be much less or even more. It’s all about the NUMBERS. As humans we are incapable of doing these calculations in our heads.
Yes, paying extra each month will reduce your mortgage. However, we’ve been brainwashed by years of indoctrination that most people will always be paying a mortgage. Enter Dave Ramsey and many others who opened the eyes of many. And that’s wonderful! It has given people hope. And that’s wonderful too! As with a friend of mine (for over 35 years) saw, we took his 27 year mortgage and he’ll now be paid off in less than 5 years. Yes, he makes a lot of money but even though he’s done well with investing, keeping debt low, etc., he never dreamed he could be out of debt in that short of a period of time.
Get out of debt…I’m all for it. But each individual needs to make up their minds as to which way they’d like to travel: via a 1850’s stagecoach or a 2008 jet. Personally, I prefer the jet.
This is my last posting and I won’t be coming back to read your response. Discussion is one thing but you seem to be too emotionally involved to discuss this issue without it becoming personal.
Joetta – The purpose of this site is to discuss things I’m interested in, like what a scam UFF is. It’s not your personal advertising space to push a product that is a waste of money.
It’s funny you mention brainwashing, because it appears UFF “agents” like you have been brainwashed to think that people can’t pay extra on their mortgages without your $3,500 piece of junk. That’s simply not true. Financial discipline does not come from wasting $3,500. It comes from making changes in spending, and that can be done for free or with a very inexpensive book or program from someone like Dave Ramsey.
And you’re right. My $20k figure is misleading. Most people reading this site will actually save more than $20k if they put their $3,500 directly to their mortgage instead of wasting it on UFF. I should really update my figure to reflect the larger figure that is the reality for so many.
There are plenty of inexpensive software packages and spreadsheets that could do the same thing that UFF is doing. Of course, you’ve got to rely on the “secret formula” that no one could possibly do on their own,otherwise you have nothing to peddle.
The truth is that someone could invest lest than $100 in Quicken and do the exact same thing, with less funny money and HELOC drama. All they have to do is figure out how much extra they can pay on their mortgage each month and do it. Then they decide if they want to pay the mortgage down even faster, and re-budget their lives to have more cash available to even more on the mortgage each month. Woo hoo! That advice was FREE!
I have no doubt you’ll be back here.
Ha ha ha ha ha ha! Thanks for the FREE advice Tracy. Priceless, no doubt. Oh, and Thank God for Dave Ramsey! I don’t need to spend time sifting through Dave’s “Dirty Laundry…” He tells us all about it. That’s his whole point! Been there, done that, got the T-shirt! If I had $3500 (which would make perfect sense– since I’m GETTING OUT OF DEBT AND HAVE NO EXTRA MONEY), I would certainly not waste it on UFF!
Gimme a break people.
yea winston and joetta…i too am a PROUD United First Financial Agent…you people need to do your due diligence…ever heard of Glenn Beck? He was our speaker recently (same weekend we were awarded the Ernst and Young Entrepreneaur of the Year award!) Mr. Beck’s opinion of our product is a positive one encouraging all 5,000 of us to take UFirst to the American People because our government certainly isn’t doing much about the economy, housing market. etc. i recently was on the air with Dave Ramsey – good ole Dave…too bad he doesn’t understand the program and give us credit where credit is due but we don’t really care!!!!! he is all about selling his “Money Makeover” – go for it! and that’s NOT a pyramid? hum, HE is at the top of his pyramid and every one who buys HIS program HE MAKES MONEY off them…he is ALL about MAKING MONEY with the products that only He, the GREAT DAVE RAMSEY endorses…i have tried to find the blog where i was on his program (just last week) but i hear he called me a “sick lady”…I have been a Realtor for ten years and have sat across closing tables and gasped when i looked at the Truth and Lending Statement (that’s the sheet of paper they usually cover up and tell you not to look at it cause it shows you how much YOU have AGREED to pay back to a lender JUST SO YOU CAN BUY A HOUSE!!! it’s SICKENING! but you do the math…that’s all UFirst is…MATH…2 + 2 DOES equal 4…Dave can’t change that and Dave still isn’t capable of doing what a computer can do…wake up America…if you don’t know how the Money Merge Account works, check it out yourself…don’t take HIS word for it…
I’ve been doing a lot of reading about what people think about MMAs, Negative and Positive. This is my result of my reading, I’m sure you’ve done your reading and have your conclusions as well. By the way, see if you understand my thinking and logic on what UFF is and the program:
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From my readings, for most of the people opposed to UFF, it’s because of the $3500. They say the program isn’t worth that because of the fact that a person can do budgeting and planning for free on their own, or with a couple hundred dollars buy Quickbooks and budgeting books as an aid. Yes that is true in self budgeting and a good point.
QUESTIONS I WANT ANSWERED:
Why don’t most American’s do it on their own then? Are most UFF’s MMA users achieving their goals?
As for now, THIS IS AN AID, JUST LIKE A COACH TO AN ATHLETE. For me, the results are what matters, did I win (achieve my goals) or did I lose (not achieve my goals)? If I win by paying $3500, then fine, result better be $0 in debt when I finish.
Joseph,
The $3500 fee is only one part of the MMA that is offensive.
At it’s core, the MMA is also inefficient. By published examples, it carries debt in the HELOC for the entire month – up to a minimum of $10,000 for an entire month – at the higher HELOC interest rate. This slows potential debt repayment and completely obliterates the small timing advantages of the “HELOC shuffle”.
The MMA is dangerous. It reduces your cash flow to less than nothing because you have no cash – only debt. If your home value drops, the bank may get nervous and freeze your HELOC. Now your primary source of money to live and pay bills from is frozen. That is not good planning.
The MMA is sold by sales people – not mortgage professionals. There is no financial degree or college diploma required. Anyone with a couple hundred bucks can sell this thing. Read some of the agent posts – you couldn’t trust some of these people to make correct change.
I could go on, but you get the point. The MMA is a truly terrible financial product sold by a predatory company that creates a cult-like atmosphere of limitless income potential. They have an army of sales people who only believe UFF marketing and dismiss basic financial math and common sense.
Sorry Joseph, I should have addressed your actual questions as well.
“Why don’t most American’s do it on their own then? Are most UFF’s MMA users achieving their goals?”
All the MMA does is send all your “discretionary income” to the mortgage. The HELOC is just a smoke-and-mirrors game, but at the end of the day, 99% of the savings are due to simple prepayment of the mortgage.
To prepay the mortgage, you need to earn more than you spend.
Even UFF agrees:
http://www.u1stfinancial.com/Default.aspx?tabid=118
“Q. If I spend more than I make, will the Money Merge Account system work for me?
A. No. If you do not make more than you spend, the Money Merge Account system is not the right option for you. ”
So first, you have to ma make more than you spend. Anyone who does this, has the option of saving this discretionary income, or applying it to existing debts like the mortgage. In the U.S., many people decide to invest instead. Mortgage interest is tax deductible, so this is a viable option to accelerating your mortgage.
If you decide to use the extra income to pay the mortgage, simply applying the extra to the mortgage every month will beat the MMA. Every time. Millions of people are doing this. I did it. It is not a secret, and anyone who has extra money just sitting in their bank account earning minimal interest is not being smart, but paying $3500 for the MMA just so you can do something you can already do easier and cheaper without it, is a terrible decision.
Are MMA users achieving their goals? UFF will tell you they are. The problem is, these are reduced goals. Reduced by the $3500 paid to the UFF agent, plus interest. It can add up to $10,000 by the end of the mortgage in common cases.
Some clients are not achieving their goals. We’ve heard from one mother of a client who lost her willpower and spend from her HELOC. She is in far worse shape than when she started.
Also, for all the marketing hype, the MMA is not a budgeting tool. It doesn’t track your spending against a budget. It doesn’t help where most families need it.
I trust Dave Ramsey any day…. so I’m not spending the 3500!!
So if the program were cheaper than $3500 you would approve. Then what price would you place on the money merge account for the progam to be worth homeowners getting.
$100 or less would be an appropriate cost.
I like to hear Dave telling people how to get out of debt, did he write that book while he was filling Bankruptcy for millions? I dont care about UFF either way but I dont know if Dave Ramsey would be my “go to” although, his book might be cheaper than a BK lawyer.
This thread has been sooo helpful and sooo funny to read!
There has been a lot of discussion regarding accelerated mortgage programs specifically around accelerated mortgage software programs. Regarding the sell of the programs, I believe sellers of these programs are opportunist/capitalist. I do not believe paying $3500 or $350 for a software application for what I can do myself.
However, my question concerns the validity of the underlying theory of interest arbitrage between a HELOC v. traditional fixed mortgage. I have done some calculation doing the money shuffle between the two without any software. Yes, the HELOC interest rate is higher than the mortgage, but the absolute dollar amount paid on the HELOC is substantially less than the interest paid/saved on the traditionally mortgage. If I am leveraging cheaper money, not interest rates, to reduce my principal mortgage balance and thus reducing the amount of interest paid and shortening the life of the loan…all the better…no?
Is there something I am missing here or is the arbitrage theory valid?
A HELOC almost always has a higher interest rate than a first mortgage, so you are not “leveraging cheaper money.” The “cost” of the money is dictated by the interest rate. So if you’ve calculated a lower cost by moving debt from a lower rate first mortgage to a higher rate HELOC, then you are doing the math wrong.
However, I invite you to post your calculations IN FULL here so that we can show you.
Tracy Coenen,
Every one is stuck on the interest rate. I am referring to ABSOLUTE dollar amounts vs. interest rate. For example: 20% on $100 = $20 vs. 6% on $100,000 = $6,000.
Yes, I will incur cost from using the HELOC, but if I can cancel a significant portion of interest and shorten the life of the mortgage all the better. Now regarding the ABSOLUTE dollars paid on the HELOC, the ABSOLUTE dollar amount paid out to the HELOC is trivial incomparison to the higher ABSOLUTE tax dollars saved on the mortgage.
This raises two questions:
1. Do you want to incur the HELOC cost?
2. How much ahead will I end up?
The two questions have two very simple answers:
1. No.
2. You won’t end up ahead. You will end up behind.
It doesn’t matter if you’re talking interest rate, or the amount of total interest you pay over the life of the mortgage or the mortgage+HELOC. You will pay more interest with the MMA. You will end up behind.
Once again, if you want to post numbers, we can show you exactly how far behind for a given example. But make no mistake, you will end up behind with the MMA.
Yep, Maurice, Craig is right. (And me too.) While you’re “cancelling” interest on that first mortgage, you’re replacing it with MORE interest on the HELOC. So you’re paying more in absolute dollars.
But I’ll invite you again to provide all the numbers you used to conclude that you’d be better off doing this. We’ll show you why you’re wrong. If you’re so certain you’re right, then why not provide the actual numbers you’re working with?
Tracey,
Again, I’m not in favor of purchasing software or service such as MMA, UFF or other mortgage accelerator programs. However, the concept of using funds that cost less (absolute dollar not interest rates) to work harder thru the power of compounding is still intriguing. I’ve been ask show numbers to illustrate.
Using HELOC for a 1 month cycle and comparing cost of HELOC to the interest saved over life of loan.
No HELOC assistance
1/1/09
Mortgage $200K @ 6%, 30 yrs – pmt $1200
Total interest to be paid over life of loan – $231,676.38
Using HELOC
1/1/09
Mortgage $200K @ 6%, 30 yrs – pmt $1200.
HELOC @ 8% (wellsfargo quote, interest calculated daily) draw and pay $5K to mortgage.
On 1/31/09 deposit portion of payroll of $5K into HELOC. HELOC balance $0. Jan interest on HELOC – $34
2/1/09
Draw against HELOC for portion of living expenses – $2500
2/15 deposit portion of payroll into HELOC – $2500. HELOC balance $0.
Feb interest on HELOC – $7.66
As a result of making this one time $3800 payment, the total interest to be paid over life of loan – $213,663.77
Ideally, one would continue this cycle monthly. The use of the HELOC is to cover living expenses. The intent to drop HELOC balance to zero each month by depositing a portion of payroll.
Conceptually, the use of the HELOC is to put cash to work where interest compounding has its greatest affect, on your mortgage, and to aid in living expenses in the interim.
The interest savings $231,676.38 – $213,663.77 = $18,012.61
Cost of Jan & Feb HELOC $41.66
Is my math and assumptions out in left field or is there some validity in this approach?
Maurice – You’ve fallen for their crap.
$5,000 on your regular mortgage at 6% costs you $25 for one month.
$5,000 on your HELOC at 8% costs you $33.33 for one month.
By using the HELOC to do the money shuffle, you are costing yourself more.
You’re not paying down your debt any faster by moving money from your first mortgage to your HELOC. The comparison you make is not valid. Saying you save $X over the life of your mortgage by moving debt to a HELOC that costs you $Y for one month is an improper comparison. You’re not comparing comparable numbers.
So the bottom line is NO, there is no validity in the approach you’ve presented. The numbers are not comparable in any way.
Oh.. And if you really want to pay $3,800 toward your mortgage to reduce what you owe and associated interest charges, then here’s my advice.
Take your $3,800 and pay it directly to the mortgage without the ridiculous money shuffle involving the HELOC. And take the $3,500 you were going to waste on UFF and pay it to the mortgage too. You’ve just doubled your interest savings.
Cost for my advice: FREE
Tracey,
I said that I’M NOT INTERESTED NOR WILL I PURCHASE ANY MMA, UFF or any mortgage accelerator programs. Why are you continuing to reference that point? I will not spend any $$$ for what I can do for myself.
Now in regards to the example I posted – If I could use my entire monthly income to pay down my mortgage I would, but I do have monthly living expense that prevent me from doing so. The use of the HELOC is an inexpensive way to help cover living expenses.
I am open to legitimate explanations and points of flaws in the example. You have not provided anything but a interest rate comparison without regard that I’m taking a significant portion of my monthly income and applying to my mortgage that results in a significant reduction the life of the loan and a significant reduction in the interest owed while drawing on the HELOC, at $41 per month, to help cover a portion of my living expense.
I’ve provided examples of the mortgage interest savings and cost of the HELOC: (Mortgage interest savings $231,676.38 – $213,663.77 = $18,012.61. Cost of Jan & Feb HELOC $41.66).
I am open to explanations in the example I provided, but If you or anyone else cannot provide more explanation than an interest rate comparison, I will assume you cannot further explain the flaws or not willing to admit that there may be some legitimacy in this theory or perhaps you work for a bank because, at least in this thread, you have not identified yourself or credentials.
At this point, I’ll seek a willing mortgage broker to help run the comparative numbers.
Maurice – You are saying you don’t have a chunk of money to pay down your mortgage, yet in your example you said that you paid down $3,800 on your mortgage. There are only two possible ways for that to happen:
1. You had $3,800 and paid it on the mortgage
2. You borrowed it from a HELOC with a higher interest rate and therefore a higher cost to you. You therefore only transferred debt and didn’t pay anything down.
Your explanation is wrong. In your original example, you actually show yourself as somehow paying off $5,000 of debt (you say your reduced the first mortgage by $5,000 AND you say the HELOC has a zero balance at the end of the same month).
But you didn’t really pay down your debt by $5,000, as you’re saying you don’t have money to do that. What I’m saying is that your example is wrong because you somehow credited yourself with reducing your debt by $5,000 (and still having the HELOC at $0) but you really don’t have that money to do so. The savings you see in your example, are solely a result of this phantom $5,000 payment.
You are costing yourself money by using this HELOC shuffle that doesn’t get you any further ahead than just sending a little extra money to your regular mortgage. In fact, your monthly cost to use that HELOC is higher than any interest savings that you’d gain on the regular mortgage.
Tracey,
OK. Yes, you are correct that I started this process by drawing against the HELOC which makes it sound like I do not have $5K to start the process. My mistake.
I do have the $5K ($1200 + $3800), but by paying all of the $5K to the mortgage leaves me with very little for living expenses. This is problem of reaching a balance between the two…clasic every day problem.
If I take $5K from payroll ($1200 plus an additional $3800)and pay the mortgage, the affect of the additional $3800 on the mortgage is drastic – it reduces the life of the loan and reduces interest owed. I hope you agree with that.
During the next pay cycle, I deposit $5K into the HELOC to drop it to zero – roughly 30 days of HELOC interest at a cost around $34.
Now, at the top of the month, I’m left with very little to nothing left over for living expenses, so I draw against the HELOC of roughly $2.5K until next pay period – roughly 14 days. HELOC interest cost of approximatly $8.
So, at the end of this cycle, I’ve taken virtually all of my payroll and applied to the mortgage and reduced the interest owed from $231,676.38 – $213,663.77 = $18,012.61. I’ve paid the HELOC back and incurred the HELOC interest from Jan & Feb HELOC of roughly $41.66.
This doesn’t work? The problem I see with this is I don’t think you can do this consistently each month. You will need time to recover or you may dig yourself into a hole.
Maurice, take a step back for a second. You’re comparing the interest accured by the HELOC over one month, to the interest saved over the *life* of the mortgage.
It is not a valid comparison. If the HELOC rate was equal to the mortgage rate, you might be able to find a couple bucks per month, but nothing worth the hassle and risk of a closed LOC. If you’re paying 6% for your mortgage and 8% for your HELOC, this will definitely leave you behind simply prepaying the mortgage as the money comes in to do so.
Maurice – You’re now saying you DO have $3,800 to immediately reduce the balance of your mortgage. So do it. You still have your $1,200 for living expenses, and you don’t need the HELOC. Using the HELOC creates an unnecessary step which costs you money because of the higher interest rate. The fact that you have $3,800 to pay on debt is a separate issue from the HELOC. If you have it, pay it. The HELOC only puts you behind.
OK, OK guys. I wish we could have a live conversation regarding this because a lot is getting lost in translation. I will respond to both to Tracey’s comments and then Jeff’s.
First, I like to thank you for your input. I think this type of forum is great…more heads are better than one…usually.
Second, I was asked to provide numbers to illustrate and provide specifics – I did. I also provide how/mechanics of the process. But for whatever reason, people are choosing to argure small slivers of the example vs looking at the bigger picture.
Now, perhaps, it would be good to post your background to establish a baseline/crediability. Now, I’m not asserting that I’m a genius or smarter than anyone. I’m just trying to vett this theory out. I am a high-tech product maanager, MBA with a concentration in marketing and finance.
Tracy, it appears, but correct me if I’m wrong, that you are not reading my entire response/example. I stated that from payroll I have $5k+. I am applying $5K ($1200 mortgage payment + additional $3.8K principal)to the mortgage, but this would leave me without enough cash for monthly living expenses.
FACT #1: By applying the $5K to the mortgage significantly reduces the life of the loan and the total interest owed by the amount previously stated: $231,676.38 – $213,663.77 = $18,012.61
Now, to cover monthly living expenses, I’m drawing from the HELOC.
FACT #2: 31 days interest on the $2.5K HELOC @ 8% is $16.49
On my next payroll period, I pay back the HELOC $2,516.49. Balance from payroll: $5K – $2,516.49 = $2483.51. $2483.51 – mortgage $1200 = living expenses $1283.51
The upside to the method, if you can sustain, is shorten mortgage life and reduced interest owed. The down side – I could not consistantly do this monthly. Also, I’m left with reduced living funds/standard of living and always going back to the HELOC. However, the cost of the HELOC for the most part is minor if you can pay it back within 30 days.
Cheers! I think I answered my own question.
Maurice – For the last time, your math and logic are wrong. You are showing a $5,000 reduction in debt, which you are not really making. You are also ignoring the fact that you are replacing 6% debt with 8% debt, which costs you more money. Although you appear to have a long-term savings on your 6% mortgage, that is more than offset by the higher cost of using the HELOC the way you are describing. There is nothing lost in translation. I’m not “arguing” slivers. Your math is simply wrong.
Maurice, it seems in your example you have an extra 1300 to apply long term to your mortage principle and not use the heloc….5K payroll minus 1200 mortgage and 2500 living expenses= 1300. Just use that and you don’t have to fool with the 8% heloc.
Cheers!
On a last note before I bow out/sign off.
I have acknowledged that I’m incurring additional cost by using the HELOC and I have stated that cost…it’s minuscule when at 8%, simple interet for 30 days! I have also illustrated the mortgage savings of the life of the loan and interest owed…it’s significant.
One. I have offered up my background and I have ask for background credentials of responders to better understand the perspective of responses…and have yet to receive.
Two. Just saying that you are replacing 6% with 8% without taking into account the TIME VALUE OF MONEY and the end result of using funds with DIFFERENT INTEREST RATE, DIFFERENT TIME PERIODS AND DIFFEERENT AMOUNTS is short sighted. The end result is the common denominator!
Three. My goal of this exercise is to explore ways to maximize the reduction on the life of a loan and the amount of interest paid…maximize being the operative word. The reduction of debt as quickly as possible is by the way a good thing, but at what cost!
With that said, of course, applying any additional funds to your mortgage payment will HELP reduce the life of the loan and interest paid, but are you Maximizing and can you Maximize?
Thank you, and no need to respond. I will be sitting down with a FINANCIAL PLANNER to further vet this out.
Maurice – Your calculations and comparisons are wrong. I have taken into account all the things you suggested, and you actually have not. Again, you’re comparing interest savings over the life of the mortgage to one month of interest on the HELOC. That’s not a valid comparison. You’re failing to calculate the ongoing cost of using the HELOC in the way you’re planning, which will more than negate your savings on the first mortgage. I can’t force you to look at that calculation, however.
My credentials are all over this site, and I won’t hold myself responsible if you’re not able to scroll up or down on the page. Bless your little soul for thinking that you’ve done a great thing by using a HELOC in the way you suggest, but the simple math proves that you’re costing yourself money, not saving money. Good luck.
Maurice – what is the point of ‘credentials’? Madoff had a great track record and ran a decades long Ponzi scheme. Many smart people were taken in by his ‘record’. My education in similar I believe to yours, my undergrad is BSEE, and I have an MBA with finance concentration. Now, with your smarts, you should be able to understand my guest post here regarding the HELOC shuffle.
Let me ask you – would you rather pay me $100 today, or pay 2% interest i.e. $2, for the next 1000 years? Geez, $2000 in interest and you still owe the $100, am I crazy? This is the point that other intelligent people are still not getting across to you. Paying 5% for 5 years is much better than paying 20% for just one, on the same sum of money.
Your examples above compare the HELOC shuffle to the original mortgage. Why not compare H-S to a regular system of prepayment? The kind one can do with my free spreadsheet, which is an amortization table showing interest saved (’canceled’ in the vernacular of the agents) based on each month’s prepayments, or any decent online mortgage calculator. You see, the agents continue to say that their product competes with what others are peddling. That’s nonsense, because I’d not have the nerve to charge for a one page spreadsheet, and most ‘nay-sayers’ here aren’t selling anything. It’s your choice in the end. You can pay $3500 and convince yourself that it was that ‘investment’ that produced the great savings, or you can do it yourself and claim an additional $20K or so in savings. MMA doesn’t save you a nickel, it costs nearly $20K. Use some common sense and you’ll see that. You can pull a copy of my sheet thru my link above. No special request or email needed.
Joe
All the authors seem to have an agenda who attack programs that are helping and working for thousands of people to get out of debt. Maybe personal book sales and radio shows could be one reason. If you really want to help people with debt.Seek out the people and the companies along with trying the program before you give self righteous prononcements of condemnation of something you do not know what you are talking about.
Robert, I don’t have to drink poison to prove it’s bad for me, nor would anyone in their right mind ‘try’ the program (I read that as why not first throw away $3500 before criticizing) that they are intelligent enough to see as a scam. Well over 200 people have requested a copy of my spreadsheet, free for the promise that they’d tell me if they still decided to buy the MMA software. So far only 3 people still fell for it. I’ve saved people over $700,000 so far, and still counting. MMA claim of any savings are highly exaggerated, the people who use it save from their own prepayments, not from the software. I haven’t written a book yet, but if you can find me a radio gig, I’m happy to take it.
Hello All-
I saw Fox and Friends the other morning and they talked about a program similar to this (but for only $1,500). It sounded interesting. Basically it said that I didn’t even have to change my cash flow habits and by making the same payments that I’m making on a 30 year mortgage (we’ve paid off 6 years in the two years we’ve been making payment) that I’d pay the loan off in 5 years. Obviously, if it sounds too good to be true…
I hate to ask others to do the work, but is there any way someone could lay out a spread sheet using the two different methods to actually show how things turn out with actual interest paid? I’d do it, but I’m terrible at math formulas and probably would compute things incorrectly. I may be where Maurice was…I’d love to see actual numbers.
Thanks for the help- I can’t wait to “Be Debt Freeee”!
Steve – It sounds too good to be true because it is. The only way to pay off your mortgage faster is by paying MORE to the mortgage sooner. These programs suggest you don’t have to change your spending habits, but that’s not true. The way they get you to pay off the mortgage faster is by taking all discretionary income (the money that doesn’t already go to bills) and applying it to the mortgage. If you look at the exact wording these companies use, it’s very clever… and probably doesn’t really say you don’t have to change your spending.
I sat through Financial Peace and enjoyed it thoroughly, that was about 5 years ago, and it did not get me out of debt by one dollar. I know why, I did not implement Dave’s advise and I don’t think anyone in the class did either. I purchased an MMA from U-First 14 months ago and have reduced my mortgage considerably and saved over $27,000 in future interest. You can beat up the MMA, but it’s all about what someone will do – I think we had a 100% failure rate in Financial Peace and that’s not a slam to Dave or his concepts, but about what people will or will not do. The MMA may seem odd to people, but it’s something I will do and am doing, I will be out of debt in half the time, with financial peace I wasn’t getting out of debt at all. Sorry, but that’s the truth.
You don’t have to apologize to us. Apologize to yourself and your family for the fact that you had to flush $3500 down the toilet before you would pay your debts down. You don’t need MMA. It adds no value. But apparently wasting $3500 is what you needed to actually start paying down those debts. (Well actually, you wasted about $20,000 when all is said and done, but hey….. who’s counting?)
Tracy, buyer of MMA, can you explain the difference? Dave showed you a path to being debt free, which you made the time to attend. I understand it’s a series of classes, not a one time lecture. But after this, you ignored the advice, and lessons learned.
What exactly makes you follow MMA, and how much time do you put into it? I mean specifically, you need to enter details of your spending, how much time per day or per week does that effort take? Why is it easier for you to follow than the Dave program?