Dear Dr. Don,
Could you please shed some light on the Money Merge Account being sold by United First Financial? The United First agent claims that for $3,500, the company's cutting edge Web-based computer program will help you pay off your mortgage in nearly half the time it would take paying it off in the traditional manner.
To use the program, you must purchase the access ($3,500) and then open a HELOC to use as one's primary checking and savings account. Is this legit? Is it smart?
-- Kit Karsten
You must have missed my earlier column "Mortgage software fails to impress."
I'll take this opportunity to remind readers that they can use the search feature within Bankrate to tap into Web site content on channels and tabs outside their normal browsing patterns on the Bankrate site.
I'm not a fan of the Money Merge Account system. I've been to the Web site and sat through the demo, but I can't figure out why you need to spend this kind of money on software to manage your loans.
So, I don't think it's a smart move to make. Legitimate? I'm pretty sure it'll do what they say it will do. I just don't see the advantage of using the software over a do-it-yourself approach to prepaying your mortgage.
It's not the intra-month interest expense that racks up the total interest expense on the mortgage; it's the outstanding principal balance. If you have the money to make additional principal payments on your mortgage every month, you don't need the bells and whistles of this program to pay off your mortgage early.
Reducing your average loan balance by $1,000 a month at 5.97 percent saves you $59.70 a year. Reducing your outstanding loan balance by $1,000 a month at 5.97 percent on a $200,000 mortgage saves you $ 163,209.53 in mortgage interest expense and shortens a 30-year fixed rate loan to 10 years and two months. You can do the math yourself using Bankrate's Mortgage payment calculator. (All analysis was done on a pre-tax basis.)
Use the $3,500 to make a lump sum payment on your mortgage instead of buying software (while continuing to make that $1,000 additional principal payment each month) and you'll save an additional $2,840.25 in interest expense and shorten the life of your mortgage to less than 10 years.
While it's true that a home equity line of credit, or HELOC, currently has a lower interest rate (5.25 percent) then a 30-year fixed rate mortgage (5.97 percent), the HELOC is an adjustable-rate mortgage and you can't count on the rate staying below the fixed-rate mortgage.