Money Merge Account Analysis Pt 1

As I posted in July, I feel some continued discussion of the Money Merge Account is in order, as many people seem to be getting caught up in the hyperbole. But I am committed to a more general readership, and toward that audience I will keep my MMA posts to appearing on Thursdays. As the dialog regarding this product continues in the blogosphere, I’ve spent quite a bit of time studying the numbers and writing a series I introduce today. If this topic is of no interest to you, forgive me and please move on, but again, this will be limited to a once per week series until I’ve exhausted the topic, and my patience.
Joe

I’ve posted in the past on the Money Merge Account and thought it was time to do a deeper dive into the pros and cons of this program and how it [claims] to work. The first question we need to ask is “do I really want to pay my mortgage down aggressively?” But that question just leads us to more questions;

• Have I studied my monthly budget? Do I have extra money at the end of each month?
• Am I maximizing my retirement plans? Especially a matched 401(k) with either my employer or spouse’s.
• Do I have any credit card debt or other revolving debt?
• Have I started saving for my child’s college education?
• What is my current after-tax interest cost of my current mortgage?
• Do I believe that the stock market will offer a higher return?
• If my mortgage interest rate is above 6% or so, have I looked to see what a bank will offer me on a refinance?
• If I do refinance, can I afford the payments of a 15 yr mortgage instead of refinancing to a new 30 yr fixed?
• Do I have an emergency fund? If not, am I able to borrow at low interest from an equity line should I have a short term emergency?

You see, the same emotions that would have you feeling so good that you will pay your mortgage down super fast will have you feeling miserable when the furnace goes, and you realize you have to pay for it off your equity line as you have no cash savings at all. Those who cite the current subprime crisis as a reason to pay your mortgage off so fast actually have it backwards. If you bought a house 5 years ago, and found you now live in a house worth far less than the mortgage, you’d have a decision to make whether or not to walk away. But if you paid so aggressively that your mortgage is already half paid off, you’ve just watched as you poured money down the drain and lived on a fraction of your income to do so. Note: I don’t recommend that anyone walk away from their house and mortgage obligations, I just want to make the point that the subprime situation is not a reason to pay one’s mortgage faster than they need to.

Next week – a closer look at the interest rates

Joe