Last week I shared a view of the MMA dashboard. As Greg commented, we should be able to calculate the optimum initial transfer from HELOC to mortgage, using the sample numbers given. Well, a bit more simple arithmetic, and I have it. From the example cash flow, we simply strike a running balance showing the amount owed on the HELOC (now, why don’t they show that right on the dashboard?). The lowest HELOC balance is -3483.86 if we use the order of flow shown, but there are multiple transactions on the same day, and for HELOC calculations we should only look at end of day balances. For the month of July, I calculate the lowest balance (owed) to be -4359.27. So the conclusion is that the initial withdrawal be 4359.27 less than suggested, or only $2790.49.
Again, in the example from the UFirst video, the HELOC shuffle has you spend $41.57 (HELOC interest) to save $35.75 on the mortgage, for a net loss of $5.82 per month. A bit of real intelligence to this process, targeting a HELOC monthly low balance closer to zero, and you will actually save about $5, net. (Pause on this fact alone for a moment. Using UFF example numbers, adjusted to their benefit, you still only gain $5 per month. $60 per year saved for your $3500 “investment”)
What remains most remarkable to me is not that people so want to believe in some magic solution that they’ll pay $3500 for such trash, but that what is so obvious to me after a bit of simple arithmetic, is even open to discussion. No agent can go head to head with me and prove the value of this program as there is none. What’s worse though, is that the most basic aspect of their system, the first transaction to start the process, is incorrect. But, if you view the whole video, you’ll find that when over $7000 is sent to the mortgage, the “interest paid” (or on my spreadsheet “interest saved”) jumps a huge amount, over $30,000. They conveniently kip the fact that you are now paying off $7000 at 9% instead of 6%, pulling out a BS explanation of how that $7000 gets paid off in 7 months vs 30 years. Well, of course it does, it’s your money. Why not just borrow the $2700 and optimize your results? Why not ask the next agent trying to extract $3500 from you while not adding a penny to your net worth? As always, comments welcome.
Joe
Having played around with a very limited demo account (only 3 months of transactions shown), I can only say that logical calculations are above UFF. They have this option (promotional now, but may be charged for later) where you can set the “aggressiveness” of the MMA software. Least aggressive (1), fewer funds transfers at larger amounts, probably the default in the video you have seen. Most aggressive (6), more funds transfers at smaller amounts. When I played around with the slider (1-6), the MMA software showed all sorts of silly results. Sometimes the least “Interest Remaining” (the most right dashlet button on the top) was lowest at a 6. Other times it was lowest at a 4.
Doesn’t the software automatically “find the fastest way to zero” already? Now users have to choose between additional factors which could affect its ability to do that? BTW, the reason I think this “feature” is still listed as promotional is it is in fact very beta.
Only value in this product, and it ain’t anywhere near $3500 (maybe more like $9.99!), is the dashboard telling you how long until your mortgage is paid off and what effect spending money has on that goal. Other than that, UFF/MMA is a $3500 pile of ripoff/scamware.
That part is the easiest. My spreadsheet will tell you that. Go to my MMA links (left above) and you can download from there. You can adjust the next month’s extra payment and see how a dollar spent or put toward the mortgage will impact you.
I’ve written specifically on the “HELOC shuffle” in a guest post at The Fraud Files Blog, please take a look at that article. When done properly, the shuffle can save you a few dollars, but not enough to pay for the MMA software and certainly not 5 years savings. The HELOC’s main purpose is to confuse you, so you think MMA creates all the savings, when in reality, about 102% of the savings come from your own money paying down principal.
I am certain the agent took your other debts, say a $300 car payment, and let the software add that $300/mo once the loan was paid off. As though you will never buy a new car, or spend on anything else. So why not take all of your current payments and assume they’ll go to the mortgage? Plug that into my sheet and see what happens. That’s as absurd as what the agent did to you, but I’d bet it drops your payoff closer to 8-9 years.
Hi Joe,
I’m just beginning to contemplate the MMA, trying to learn as much as possible about it. One thing I’m wondering about and not seeing much discussion on is the average daily balance of the heloc. On their video, UFF is showing that the interest amount charged on the heloc is computed from the average daily balance of the heloc. They’re saying that if you deposit your income checks to the heloc, this deposit reduces the average daily balance, which lowers the interest that accumulates, which is why you can use a heloc with a higher interest rate than the first mortgage.
When I run my numbers on your spreadsheet I see I can payoff my mortgage in 15 years. When my prospective MMA sales guy runs my numbers, -same numbers-, the MMA shows my payoff to be 10 years…
Wouldn’t the extra 5 year payoff reduction be due to the shuffling of my principle back and forth between the first mortgage and heloc, with the low interest amount accumulating on the heloc?
Check out the company’s video which explains this and please let me know your thoughts…
http://www.mathnotmagic.com/presentation
Thanks,
TR
Don, I left the link as that software is only $21.95, and if one feels my spreadsheet is not sleek enough, that’s fine.
$10,000 today will save more than $2500/mo for 4 months, agreed, but if that $10,000 is pulled from the HELOC to do so, it negates the potential savings and one is better off just doing the $2500 monthly. It’s easy to show the ideal HELOC use is where the lowest balance each month approaches zero, this keeps the HELOC average daily balance to a minimum.
The more you pay and the earlier you pay it the more you save and the sooner
you get done. 10,000 paid today is more effective than 2500 paid over four months. This is the advantage to using a HELOC. vs throwing your excess
cash in at the end of the month.
We’ve been doing it now for 18 months without fancy software. Well not quite true. I did play with this shareware program during its trial period.
http://www.pcshareware.com/payoff.asp
Don, most of my remarks regarding HELOC assume the ‘classic example’ where HELOC interest rate is greater than the 1st mortgage. In that case, any balance on the HELOC at the end of the monthly cycle costs you that delta (HELOC rate – 1st Mort Rate) each month. In your case, I agree that you are ahead 2.15% because of that balance, and as you know, the HELOC balance is based on your stomach more than numbers. If early payoff is your goal, you’re doing well to get there. You are even further ahead by not throwing away $3500. Pull a copy of my spreadsheet if you wish, it can help you track your progress with no effort.
I wish you well.
Not quite true.
ten thousand dollars pops the amount going to principle up by around fifty bucks
on my mortgage. When we bought into this the heloc was 8.5% and a 10,000 heloc balance would cost you about fifty bucks a month. before you drop your
paycheck in – so it is actually less then that.
Granted, the ideal is to wait four months and save up the ten thousand dollars
then do the heloc shuffle based on a savings account rather than the heloc.
The cost of doing that in my life would be over two thousand dollars in interest
paid to the primary mortgage.that I’ll never see again vs less than 200 bucks
paid to the heloc.
But wait, it gets better! The heloc is a variable interest loan and has dropped since we got it from 8.5% to 3.5%. My fixed rate loan is 5.65%
Based on those figures alone it would make sense to keep the heloc maxed
all the time (provided every nickel goes to the primary mortgage). But that is
too wild for my blood in these uncertain times. We were taught to keep a heloc
limit of 2.5 x our monthly take home. We are much more conservative using
at more like 1.5% Harj Gill recommends a heloc no larger that your monthly take home. It’s hard to bury yourself with a conservative instrument like that.
We are a family on a mission. Over the last 18 months we’ve dumped 45,000
into the primary mortgage. With the reverse compounding the actual money realized was 52,000.
We dropped from 164000 to 111254 during that time period. With our next payment we cross the half way mark. By this time next year we should be around 65,000.
The original estimate was seven years for us. We will come in to the finish at
five or less. Even if they yank the heloc which is a possibility. They cut it from
54000 to 19000 last summer. Knowing what we know, we will prevail.
.
We got into this before the idea really took off in the states, and before folks
like yourself were able to respond. The fella who got us into it we trust totally
and still do. He had the best of intentions. He has since gotten out of it.
We paid way too much to learn what should be required learning in every high
school in the country. It isn’t even a learning so much as an attitude adjustment.
Had I known this twenty years ago I would be retired today. It is working for me
now and that is all that matters. What has changed about our attitude is how
we view our budget. At any given time now I can tell you to the penny how
deep in debt we are (121954). Under the old system-the system that most Americans use-the system that got the economy where we are today, we didn’t have a clue. We felt rich if we had 3,000 dollars cash in the checking account, or a zero balance on a credit card.
So yeah, we paid too much. But education is worth investing in. We try to pass
it on by teaching what we learned for free. The primary advantage to the HELOC
shuffle is it is an enforced savings program. Fail to repay the loan and there are
consequences. For us it has been worthwhile. We went from saving nothing to
saving 45% of our income. It is worth three hundred bucks a year to us to accomplish that. Again, the ideal heloc shuffle would be savings account based
and you would have at least a ninety day cash reserve for emergencies on top of that.
Listen to Joe, and then make sure your children understand what he’s saying.
But also make sure your children understand how to make compound interest
work in their favor.