One of the credibilty builders (i.e. smokescreens) that United First Financial agents use when trying to sell their Money Merge Account is… “It’s based on the Australian banking system!” The claim is that this “system” has been used successfully in Australia for years, and so we should believe in it too!

However, the truth is that this “system” is all but dead in Australia because people (and regulators, to some extent) figured out what a scam they were.  Here’s some information provided to me by someone in Australia who has done extensive research on the issue of mortgage acceleration:

What we found with a number of consumers we assisted, was that they moved from dealing with a very simple mortgage arrangement (just make payments) to a more complicated system.  They had been told that the system would cut their mortgage time dramatically, without making extra payments.  Some of these borrowers were actually told by promotors that because they would pay their mortgage off so soon, they should look at borrowing extra for a car or renovations.  In other cases, the borrowers themselves believed that they had a much shorter mortgage period and therefore were less cautious with their spending.  The other problem was that the demonstrations often showed big decreases in the mortgage based on unrealistic spending estimates.  When the plan didn’t go to plan, some people just lost financial control – and given that using a credit card was part of the plan – got deeper into debt.  In a number of cases borrowers’ homes were at risk due to the additional complexity of the plan and the additional credit made available.

While software was not usually provided as part of the plans in Australia, my view after looking at some of the software, is that the software would not really help reduce confusion.

The key problem was that people believed (because they were told) that they could spend in the same way as they always did, and their mortgage would be paid off faster.  Anyone going into one of these things with that belief is likely to struggle – or get into real trouble.

And a simple Google search confirms the issues with such a system in Australia. Here’s an excellent explanation of what regulators in Australia are doing about the mortgage acceleration fraud. Specifically:

‘Most lines of credit charge higher interest rates than standard home loans, so when you stop to think about it, it was extraordinary to suggest that paying higher interest could pay off a loan sooner’, said Mr Greg Tanzer, ASIC’s Executive Director of Consumer Protection and International Relations.

And:

‘The only way to pay off your loan sooner is by moving to a loan with a cheaper interest rate or by making extra repayments. In fact, if you can afford to make extra repayments you will probably save just as much by making those payments on your existing loan, and you can avoid extra costs, such as early repayment penalties and application fees, by not refinancing,’ Mr Tanzer said.

The article confirms what I and several others have been saying all along: That there are minimal savings to be achieved from using the Money Merge program (basically a complicated money shuffle):

This means that the borrower’s salary can sit in their loan account in the period between the date of purchase and the date of payment of the credit card. This mechanism slightly reduces the balance of the home loan debt for part of each month and therefore slightly reduces the interest payable. These types of savings are called offset savings. The credit card will be paid off each month by using your funds from the line of credit. The offset savings achieved for most people will be minimal.

And don’t make the mistake of thinking this is only pertinent to the “bad” sellers of mortgage acceleration programs. A more recent article further illustrates the problem. The issues cited in that article are exactly what all (or almost all) of them are dealing with as virtually all of the programs are set up the same way.

ASIC took action in November 2008 against Whyte Corporation and Mr Gavin Whyte, the director of Whyte Corporation, alleging they contravened the Australian Securities and Investments Commission Act (ASIC Act) by representing that the EquityExcel Plan allowed borrowers to pay off their mortgage sooner and make substantial savings with no increase in their monthly payments or changes in their lifestyle.

ASIC alleged that this representation was misleading, or likely to mislead, as a borrower could only pay off their mortgage sooner or make substantial savings using the EquityExcel Plan if they made considerable additional repayments over and above their minimum monthly repayments.

So for the millionth time, avoid these programs. They don’t do what they say they do, and they’re not worth anything. Not $3,500. Not $100. Nothing. Go get yourself a simple and inexpensive program that helps you manage your finances, get on a budget, and if you have extra money each month and want to pay off your mortgage faster, send that extra money to your mortgage compay. You’ll pay off your mortgage faster than your scheduled repayment, and it will be free!