I’ve been researching Money Merge Accounts (MMA) lately and I’d like to take this opportunity to post my thoughts.

First a disclaimer. I don’t sell this program so I don’t stand to make any money from this and I am most certainly not an expert in this area so take what I say with a grain of salt.

I’ve come across many negative posts about these accounts from people who don’t seem to understand it. They usually will say something like “Save your $3500 and do it yourself. You just need to put all your extra money towards your mortgage blah, blah, blah…”. What they don’t seem to grasp is that with an MMA the idea is that you greatly reduce the time it takes to pay off your mortgage, saving thousands without changing your spending habits.

Before I go any further, let me give a brief explanation of how it works.

The home owner gets a certain type of Home Equity Line of Credit (HELOC) and uses it as their checking account. They also get a nifty piece of software that helps them manage their money. Basically in the beginning your have this large amount of credit minus the fee for the program, we’ll use $3500 for this example. You immediately pay off a small chunk of your mortgage with your HELOC, let’s say $5000. You have your paycheck direct deposited into the HELOC account. So you started with a loan balance of $8500 (program fee plus $5k toward mortgage). Lets say your paycheck for the month is $5000, so that gets deposited bringing your balance down to $3500. Pretty sweet huh? Of course you have to pay bills so you pay those from the account. If you have $1000 of discretionary income each month, then at the end of the month your balance is $7500. Of course you aren’t paying interest on all of that because by depositing your paycheck in there you brought the average daily balance down. You also paid the minimum payment without even thinking about it. After a few months the software will analyze your spending habits and tell you when and how much to pay extra toward your mortgage. So it makes it very easy.

The key here is not changing spending habits, but you are paying your mortgage faster. You see, in that first month you had $1000 discretionary income just sitting in there. You didn’t send a check to the lender for it, but there it sits keeping your balance down. Maybe you spent $200 of it, so only $800 is left at the end of the month. Maybe the next month you spent $500 of it, but you still have $1300 sitting in there keeping the balance down. When that builds up enough (when the HELOC balance gets low) the software will tell you to make another extra payment. If you did like many people say and just make the extra payment on your own that money would be gone. With the HELOC you still have the credit available if you really need it, but the software has determined based on your habits that you probably won’t. If you lose your job, you still have that cushion in the HELOC.

This is what I think is particularly powerful with a program like this. While you don’t need to change spending habits, it probably will help you to change them for the better. Back to the example of $1000 discretionary income. That money is in the HELOC keeping your average daily balance down so you pay less in interest. Every time you dip into that your balance goes up a little and you are that much further away from paying off your mortgage. So whenever you buy something you need to ask yourself if it’s worth adding that to your mortgage. Is this $5 magazine worth adding $5 to my mortgage balance?

To all the people that say this program is a waste of money and you should just make extra payments, I have to ask if you are disciplined enough to do that? I’ve tried doing that for years and sometimes I do but many times I put it off till next month. This program will tell you exactly how much to pay and when based on your habits and keeping a happy medium between a low daily balance and paying down the mortgage quickly.

All that said, I don’t think I’m going to do it. The concept is good, but I’m not convinced that investing in home equity is a good investment. In other words I think my money would be better spent in other investments that will make more than paying off my mortgage will save. Plus, I have too much other debt to even consider doing something like this. I like the concept though and I think it would apply well to paying off my other debt. While the program would probably help me get out of debt much more efficiently than doing it myself, I can’t really justify the cost of it. So I will probably attempt to do an MMA type of thing myself. It will require me to scrutinize my habits and stay disciplined though, which I haven’t proven to be very good at before.