Haven’t gotten enough of the cold hard reality that United First Financial’s MMA is inferior to a very simple (and free!) do-it-yourself prepayment of your mortgage (which only requires you to pay extra on your mortgage once a month)?

Joe Taxpayer did a five-part series on the UFF MMA, and here’s a summary:

Part One – Do you really want to pay off your mortgage early? There might be some really good alternatives to this mortgage acceleration, and Joe goes through several of them.

Part Two –  It sounds good and responsible, but some people argue that you shouldn’t pay it off early, especially if you have a very low interest rate. You might be able to take your excess cash and invest it elsewhere to provide a greater benefit in the long run.

Part Three – A simple do-it-yourself will produce better results than the MMA money shuffle. Why? The program has you leverage a home equity loan (HELOC) to pay down your regular mortgage. HELOCs almost always have a higher interest rate, and in the example UFF uses, the regular mortgage is at 6% and the HELOC is at 8%.  Using debt at 8% to pay down debt at 6%? That’s just foolish.

Part Four – The UFF MMA example assumes a consumer is netting $5,000 a month and has $1,000 extra cash each month to pay toward the mortgage. Joe examines just how realistic this is (not). Why don’t they use a more realistic example like $100 extra cash per month to pay toward your mortgage? That’s not as impressive.

Part Five – Joe demonstrates the MMA money shuffle. The company wants you to think it’s magic math. The truth is that it’s a simple shuffle that doesn’t get you as far ahead as if you just did a simple prepayment of your mortgage.

8 Comments

  1. Joe Taxpayer 10/19/2008 at 8:01 am - Reply

    Part 6 is now posted on my blog at
    http://www.blog.joetaxpayer.com/archives/339
    I offer replies to a number of exaggerated claims made by MMA agents. One highlight is a comment I received from Lee Bradshaw whom I quoted in the post.

  2. JoeTaxpayer 10/23/2008 at 6:42 pm - Reply

    Part 7 is now posted on my blog at
    http://www.blog.joetaxpayer.com/archives/354
    In this post I review one MMA agent’s letter of recommendation from a client who happens to work for a mortgage company. It’s clear from my analysis that neither client nor agent understand the difference between interest, principle, or time value of money.

  3. JoeTaxpayer 10/30/2008 at 3:23 pm - Reply

    Part 8 is now posted on my blog at
    http://www.blog.joetaxpayer.com/archives/390
    This post offers the first 5 months of an amortization schedule and a bit of explanation of how mortgages work. Not too complicated.

  4. JoeTaxpayer 11/06/2008 at 7:34 am - Reply

    Part 9 is now posted on my blog at
    http://www.blog.joetaxpayer.com/archives/398
    I offer more discussion of mortgage calculations, first offering a look at the difference in payment due based on different terms (from 30 yrs down to 10, with a number of terms in between) and then offer a snippet of spreadsheet showing the impact of large prepayments.

  5. JoeTaxpayer 11/13/2008 at 10:22 am - Reply

    Part 10 is now posted on my blog at
    http://www.blog.joetaxpayer.com/archives/433
    I approach HELOC use from another angle, trying to objectively explain the logical limits of what one can expect to gain from this monthly transfer of funds from paycheck to equity line to checking, etc.

  6. JoeTaxpayer 12/02/2008 at 6:54 pm - Reply

    Part 11 is now posted on my blog at
    http://www.blog.joetaxpayer.com/archives/732
    I discuss the difference in interest calculation between standard mortgages and HELOCs. Of course, there’s a difference, just not enough to save you tens, let alone hundreds of thousands of dollars.

  7. JoeTaxpayer 12/02/2008 at 7:32 pm - Reply

    After receiving a number of requests, I have compiled all my posts on MMA into one PDF. It’s linked from my website (click on my name above, it’s the first link there. Thanks to Tracy and Craig Hansen whose guest post “United First Financial’s New Math” (aka Factorial Math) I also include in the compilation.

  8. JoeTaxpayer 12/07/2008 at 4:17 pm - Reply

    Part 13 is posted on my blog at
    http://www.blog.joetaxpayer.com/archives/738
    I look at an analysis a reader had done by an agent in which only $25 extra funds were available each month. The analysis showed that for $3500, you can save $7252 in interest, or you can prepay the $25 each month and save $14966. Tough choice for some.
    (Note: Part 12 was a special Thanksgiving wish regarding MMA, not a post worth announcing)

Leave a Reply to JoeTaxpayerCancel reply