Mortgage Accelerator / Offset Account / Pay off Your Mortgage Sooner Myths and Facts FAQ

(WORK IN PROGRESS)

DIRECT LINKS TO LEGITIMATE BANKS OFFERING OFFSET ACCOUNTS

WaMu Mortgage Plus FW discussion

Wells Fargo

Salem Five

Recently there has been a dramatic increase in people scamming others to signup for these programs. Its only likely to increase, so I am going to maintain This one thread so we have a centralized place to refer people.

Offset accounts have been discussed for years here at FWF, and heres a good thread discussing them, back from when scammers werent filling this forum

The questionable programs are known as the Tardus method, Harj Gill, United First Financial, CMG, Home Ownership Accelerator, etc. these programs are all a variation of using a HELOC as a checking account, depositing your paychecks to "paydown" your mortgage and then drawing out funds to pay your bills. The theory is that the reduction in average daily balance of money borrowed saves you interest charges, thus speeding mortgage repayment.

The REALITY with the scam programs is that the interest rate is often much higher than your first mortgage, and combined with the closing costs/fees/software costs, you WILL NOT see a savings. Worse of all, the people pushing these use MISREPRESENTATIONS to confuse novice owners.

The scammers say that , with "typical" 3000-8000/month paychecks sent to a HELOC you can reduce your mortgage by 20 years. WHAT THEY FAIL TO MENTION IS THAT THE REDUCTION IN MORTGAGE TERM COMES FROM THE EXTRA PRINCIPAL PAYMENTS, not an "average daily balance reduction" of total interest paid trickery. Every penny of your "discretionary income" is applied to loan paydown(see page 3 of this thread where I debunked a UFF scammer) You can accomplish the same thing yourself for free, just by sending in additional mortgage principal payments.

Most people dont like funneling all their discretionary money into mortgage paydown since they cant access it once its paid. If you must have access, you can replicate the same thing by picking one of manyNO CLOSING COST HELOCS,

Some creative ideas include doing an App-O-Rama, then paying down the HELOC with 0% BT money, using the HELOC to slowly repay the 0% cards. This is sound strategy. And it made LOTS of sense a few years ago when HELOC rates were low.

However, now deposit rates are high, and even no closing cost, good rate HELOCs are still about 1-2% more than typical fixed mortgage rates, so there is LITTLE SAVINGS for most people depositing a few thousand $$ paycheck amount each month...it would take HUGE monthly income/paycheck deposits (or large 0% BT deposits) to see a significant benefit and reduction in average daily balance. Moreover, any claimed savings by HELOC shuffling tricks is reduced if you normally keep your paycheck money in a high rate deposit account, rather than a 0% account, since the interest you earn in the deposit account creates a wash against the interest saved.

If you are ever approached by these scammers, pay special attention to your "discretionary income" figure, as they apply your discretionary income to mortgage paydown - which is the same as making extra principal payments!

Some legit banks in the US like WELLS FARGO, WAMU and SALEM FIVE are starting to market products like this, and soon we may have even more LEGITIMATE providers touting these systems with products at more attractive rates. but so far, its mostly SCAM OUTFITS and MLM hucksters. DO NOT FALL FOR THEM - USE ONLY A DIRECT BANK SUCH AS THOSE MENTIONED AT THE TOP OF THIS THREAD.

While the CONCEPT of "offset accounts" is sound, they are being MARKETED BY SCAMMERS pushing the WORST possible products. Just watch to see HOW MANY NEW MEMBERS signup at FW just to post in this thread promoting them....this thread will likely need heavy moderation. Hopefully other FW readers can help explain/debunk these products when people come to this thread to ask questions.

Edit by Mod- Please ignore the ugly red text. This thread was deleted on accident. Sorry SIS
Edit by SIS - no worries

Do you want to keep this solely focused on these "offset accounts", limit it to any plans that pay off your mortgage sooner (like bi-weekly or just paying extra principal at times) or open it up for the whole gamut (e.g. if two of the main reasons to buy a house are the leverage and that the interest is deductible, why would you deliberately work against these)?

Guys don't get rich having debt.

Go tell it to Ted Turner and Donald Trump.

lostdude said: People here are so short-sighted and self righteous.Mike, what's the point of your post? What does your view of this forum has ANYTHING WHAT SO EVER to do with the OP or Talljay's post? Why crap a good thread to show you are not one of us "little people"?

Of course debt is not desirable but not all debt are the same. While there are many companies pushing a pay for home ownership acceleration program, there are some (Wells Fargo) that do not charge you anything to do bi-weekly payments. Talljay is talking about those who charge fee for such program but that topic is covered already in the FAQ #5

Learn to read. He asked if the discussion was for pay programs or for both pay and non-pay biweekly programs. He also stated that "...(like bi-weekly or just paying extra principal at times) or open it up for the whole gamut (e.g. if two of the main reasons to buy a house are the leverage and that the interest is deductible, why would you deliberately work against these)?" which shows that he is thinking that biweekly payments are bad as well.

And you once again are showing that your thoughts should be the only one that matters with your "not all debt is the same" statement. Not all debt is the same maybe to you, but that doesn't mean it is that way for others. To some, any debt puts a ton of pressure on them so in that sense all debt is the same.

umcsom said: Don't feed the trolls

Ahh I am a troll because I answered a question a guy had. I love how jealous you are. Anything I try and say you shoot down.

mikef07 said: He also stated that "...(like bi-weekly or just paying extra principal at times) or open it up for the whole gamut (e.g. if two of the main reasons to buy a house are the leverage and that the interest is deductible, why would you deliberately work against these)?" which shows that he is thinking that biweekly payments are bad as well.

Thread title is " Mortgage Accelerator / Offset Account / Pay off Your Mortgage Sooner Myths and Facts FAQ" and I was simply asking about what should be included in the "Pay off Your Mortgage Sooner" part and giving examples that I could think of. I never said anything about these being bad or good ideas.

If you want to know what someone is thinking, I suggest asking instead of assuming.

It's the same yield, taking only the fed taxes into account. State taxes vary ...
The HYS has a definite liquidity advantage.

EricGo07 said: Simplest is to simply send the mortgage payment in earlier in the cycle.

Not usually. Most first mortgages are not simple interest calculations, so as long as the payment is sent before the end of the grace period, the interest is the same. So whether you send in your July payment, due July 1 on June 15 or on July 14 (assuming you have a grace period until the 15th), you will pay the same interest. You are better off to cycle money through HYS between your payday and the end of the grace period. I try to pay my mortgage (due the 1st) between the 10th and the 14th every month and take advantage of the float time by parking the payment in my Money Market until then.

CitiMortgage keeps sending me mail about a bi-weekly payment program administered by NC Insurance Agency Inc. (which is owned by CitiGroup). I read their little spiel and calculated what the difference would be if I just saved it biweekly and paid twelve times a year with 1/12 of a payment added as extra principal. Their terms state that they just sit on the money all year until a full payment is built up, and then they pay it towards the principal in one lump sum. They also charge $375 to sign up, and $0.75 per transaction (or $585 over the life of a 30-year mortgage paid biweekly). So, they get $960 in fees and they get to sit on your money and earn interest.

On my $117,000 mortgage, I determined that I would save $3,000 more by doing this myself, plus there would be no fees. CitiMortgage allows you to setup automatic payments drafted from your savings account. I setup my direct deposit to add half of my mortgage payment to my savings each pay period.

It isn't really that difficult. This draws down your principal a little throughout the year, so that you have even more interest savings, plus, you get to sit on the money for a little while (which adds up to over $1700 if it increases your average daily balance by $600, at 5.05% for 22 years).

If a company spends money to send you mail or place a phone call to you so that you can save some money, chances are that they get some benefit from doing so. Why not try to realize the benefit for yourself?

Saving pennies by sending in a mortgage payment early may be a ymmv item. I have a HEL with PenFed that says:

"I will pay interest at a yearly rate as set forth above. Interest will be charged on that part of principal which has not been paid."

EricGo07 said: Saving pennies by sending in a mortgage payment early may be a ymmv item. I have a HEL with PenFed that says:

"I will pay interest at a yearly rate as set forth above. Interest will be charged on that part of principal which has not been paid."

Yes, all HELOCs that I'm aware of (thus the creation of mortgage accelerators), a good percentage of HELs and auto loans are simple interest, such as you described. I had an auto loan that was simple interest, due on the 15th, grace period until the 25th, and every payment I made calculated the interest since the last payment and recalculated the principle, and had I gotten an amortization schedule when I got the loan, I'm sure I'd be way off. If per chance I made the payment later one month (say the 22nd) and early the next month (like the 10th), the interest portion was very small, since it was a lot less than one month's interest.

I don't have the contract language (and, honestly don't feel like digging it out when I get home and typing it out), but in basic language it says the interest is amortized through the loan and payments will be applied according to the amortization schedule. On my payment coupons, it asks if any amount over the payment should be applied to future payments or to principle. If I apply to future payments, it does not change the amortization. For example, I could make a payment today for 3X my monthly payment and if I chose to apply to future payments, I'd get a receipt stating the next payment was due October 1, for the regular amount, and would not change interest calculations or amortization of the loan. If I chose "apply to principle" the principle would be reduced, and the calculations are made, but my same payment would still be due on the 1st of the following month, and the payments would NOT be reamortized (now this is a fixed 30, an IO is probably different), the payment would just have more go to principle and less to interest, but nothing else changes until I get to the end of the loan (which is reduced by the principle payment). Does that make sense???

I had reason to call PenFed, so I also asked about home loans.

Regarding my HEL, early payment in a cycle reduces interest. And in fact, paying more than is due delays the next payment due if the total overpayment is more than one monthly payment. Dave Hanson wrote a thread a couple years ago describing a method whereby a simple interest loan of this type could be exploited by paying ahead periodically -- see above post.

PenFed's standard 1st home mortgages are more in line with what berlinsmommy describes: extra or early payments pay down principal, but do not change the monthly payment or it's due date. Makes me wonder if an extra payment just before the end of a cycle gains a month of float.

Anyway, back to topic: Since a HEL can be simple interest, pay ahead delays payments, and the interest rate is often (at least in PenFed's case) the same as a standard mortgage, perhaps it should be used as the offset account rather than a HELOC ?

mikef07 said: umcsom said: Don't feed the trolls

Ahh I am a troll because I answered a question a guy had. I love how jealous you are. Anything I try and say you shoot down.

Take a deep breath. Relax. You don't talk to real people you encounter face-to-face this way, do you? There are real people here too. We like it better when you talk to us nicely. Have you considered using some vacation time this summer?

I don't know about this Mortgage Offset Account. By setting this account and you 'accelerating' the payments and you have to pay a 'service fee'? I was fortunately enough to get a 15 year loan adjustable every 5 years at 4.99% and I don't have any prepayment penalty. In the beginning, I would agressively prepay pay down the loan because my interest rate is higher than my savings rate. Now that the saving rate is higher than my interest rate, I am just putting money in cd's until they plan to adjust my rate in the 5th year.

Mortgate offset Accounts is just another way for them to rip you off, otherwise why would they stay in business?

I am not going to say wether I am for or agains this MMA product. What I will say is how it works because it doesn't seem like anyone does understand EXACTLY how the product works. So here you go. Once again I hope this comes off as unbias cause I really am trying to be just that. I just want people to know EXACTLY what they are talking about.

Money Merger Account- U First claims to be first company in US to offer this product. It is built to help their customers pay off their 30 yr. Mortgage in 8-11 years on average; without changing their spending habits a great deal and without increasing their mortgage payment. The general idea behind this is to use the HELOC to make large principle payments to your 1st mortgage so you can lower the amount of interest paid in the long run. To do this you need to use the HELOC as a checking account and put your monthly income into the HELOC which will look like a payment to the bank. Even though the client will be using the funds deposited soon to pay their living costs.

3 Main Components to the MMA
1- 1st Mortgage
2- HELOC (Home Equity Line of Credit)
3- MMA Software & Website

Mortgage Component- Closed-End Loan. You can put money into this account, but cannot access the additional equity. Does not matter what type of mortgage you have. The lender does not matter either. This is a stand alone product that works independently of the lender. An MMA helps you make additional principle payments to bring down your amortization schedule and therefore decrease your interest paid on the mortgage. The interest paid is only changed every month, so if you make your regular payment and two additional payments to principle it will not change interest owed until the next month.

Component 2- Advanced Line of Credit (HELOC) - This is what will drive the MMA product. An open-end loan, lender will apply money to loan balance when received. Lender will adjust principal balance multiple times per month. View daily balance to assess interest charges. You can put money into this account and also take money out. HELOC needs to function like a primary checking account. Apply all income to the HELOC and use the HELOC to pay bills.
Optimum performance of an HELOC-
Deposit maximum amount of money into the line of credit per month. Keep it there as long as possible. Have the least amount of money spent possible at the end of the month for living costs.

Model Budget- $5000 Monthly NET income. $4000 monthly living expenses (mortgage, car payments, entertainment)
Discretionary income (money left over after Net income – Cost of living) = $1000
This client gets an HELOC for $60000. (It doesn’t matter if the HELOC is for $10000 or $200000, they will pay off their 1st mortgage in the same amount of time)


MMA Month 1
$3500 MMA one-time upfront fee which comes straight out of the equity line of credit. The client then uses the HELOC as their primary checking account. They write checks for their $4000 in living expense every month. So they have now used $7500 of their $60000 HELOC. They then deposit their paycheck into the HELOC ($5000) to adjust their daily balance down to $2500. So the bank is now only charging interest on $2500. The bank was expecting a payment of $20.83 (based on a 10% interest rate) but instead received the paycheck deposit of $5000. This reduces interest greatly. The client also pays no interest on the $4000 they used for their living expenses since they made the $5000 deposit. So the HELOC is the Interest Cancellation Account when used as a checking account. In some cases the interest that ends up being paid on the HELOC or a portion of it is tax deductible as well. So the total owed at months end in the HELOC is $2500 plus the interest of $20.83. $2520.83
(some people have argued about the interest earned in checking accounts that is being missed out on. at most banks you need to keep a very high amount in your checking account to earn more than .5% on your account.)

MMA Month 2- Balance in HELOC $2500 (rounded here just to make things easy) Now lets say paychecks come around and you want to deposit it into the HELOC and then pay your bills. Well you can’t do that right now because you don’t owe the $5000 that you make, on your HELOC right now (it cannot have a negative amount of money owed) For example on a credit card you can overpay your bill by $100 and that extra money is available to you through your card. On a HELOC you cannot do this. It can only be at a zero balance. The MMA software helps to make sure you don’t have to worry about this as long as you follow the game plan. So the software tells you to move $5000 from the HELOC to the 1st mortgage so you can make your payroll deposit into the HELOC account. You then also pay your living expenses which is $4000. So the balance is now the original $2500 left over + $5000 mortgage payment + the $4000 living expenses = $11500. Then to help cancel interest you deposit your $5000 in payroll to the HELOC account to bring the balance to $6500. Lender can only charge interest on the $6500, which at 10% is $54.17. So once again, you are paying no interest on the $5000 you used as your additional principle payment to your 1st mortgage. Now it seems; well if you do this ever month then your HELOC balance is going to spiral out of control. The software of MMA will make it so if that would be the continuing trend, you will just make normal mortgage payments for a month or two...etc. instead of a huge payment out of the HELOC. That way your paychecks are going to drop the balance in the HELOC to a reasonable amount and once that happens you can then make another large payment to principle on your 1st mortgage.

In another example the amount of principle that you pay every month on the closed-end loan(1st mortgage) increases very slowly. But by making these large payments every month or so, it increases the amount of principle being paid on every regular payment as well. For example the principle being paid increased only $.69 a month on the regular amortization schedule; but by making these large payments to the 1st mortgage through the line of credit; the client was able to increase the principle payment by $12 in the same amount of time. So in those months when you are only making the normal mortgage payment you are way ahead of the amortization schedule anyway and decreasing your principle exponentially.


Goals for the closed-end loan- Eliminate interest
Control your money so it doesn’t control you
Get your money to work for you instead of working for the bank
Goals for the Open-End Loan- Income Forces adjustment to principal balance.
Interest cancellation account

Component 3- MMA Software and Website

Financial Dashboard
Financial Planning
Online account register
Maximizes money performance
10 minutes per month to update

It will not be able to move money or pay bills.

The software allows you to see the deposits to and withdraws from the ALOC. It also adjusts to show you how quickly you will be paying off your mortgage. The software automatically tells you how much of a payment to make towards principle and when to make normal mortgage payments for a while to decrease the amount owed on your ALOC.

If you are to partake in this, you have to have the goal of paying off your mortgage in a short period of time. If you are spending the money in the HELOC on things that are not working towards this goal like a car or remodeling the kitchen for $10000; youre not understanding the reason for the HELOC. The goal is to keep that at a controlable balance so the interest is never too high; and use the funds to pay down large sums to the principle of the 1st mortgage.

neilruby said:
MMA Month 1
$3500 MMA one-time upfront fee which comes straight out of the equity line of credit. The client then uses the HELOC as their primary checking account. They write checks for their $4000 in living expense every month. So they have now used $7500 of their $60000 HELOC. They then deposit their paycheck into the HELOC ($5000) to adjust their daily balance down to $2500. So the bank is now only charging interest on $2500. The bank was expecting a payment of $20.83 (based on a 10% interest rate) but instead received the paycheck deposit of $5000. This reduces interest greatly. The client also pays no interest on the $4000 they used for their living expenses since they made the $5000 deposit. So the HELOC is the Interest Cancellation Account when used as a checking account. In some cases the interest that ends up being paid on the HELOC or a portion of it is tax deductible as well. So the total owed at months end in the HELOC is $2500 plus the interest of $20.83. $2520.83

WRONG!!!!!

The MMA figures interest on a daily basis, so you do have to pay interest on whatever the balance was each day. You didn't do dates, so let me throw in a hypothetical timeline:
1st: $3,500 for miracle software purchase
$3,000 of $4k living expenses
($2,500)paycheck
$4,000 balance carry to 15th

15th: $1,000 living expenses
($2,500)paycheck
$2,500 balance

Interest accrued= $26.71 and we still owe $2,500 moving into next month and didn't make any extra mortgage payment.

Month 2:
$2526.71 balance
$3000 of $4k living expenses
($2,500)paycheck
$3026.71 balance carry to 15th

15th: $1,000 living expenses
($2,500)paycheck
$1,526.71 balance

Interest accrued: $18.71 and we still owe $1,545.42 (after adding in the interest) going into month 3.

I won't continue calculating, but as you can see, there is clearly no extra money to move to the first mortgage in months 1, 2, or 3 and we took a family who has an extra $1k/month and after 2 months they owe $1,545.42. Instead, had they saved that extra $1k/month and not purchased the software, they could either have $2k plus interest in savings or have paid off $2k on their mortgage (without knowing what the mortgage is or at what rate I cannot calculate interest saved or how many years has been lopped off the mortgage).

neilruby said: Control your money so it doesn’t control you
Get your money to work for you instead of working for the bank

Let me guess, you spend all your savings on Kool aid.

The "goals" of the program are nothing but sale gibberish that this guy would be ashamed to use.

All these people here jumping to conclusions about wether an MMA/ALOC is a scam...
Here's a quote I think we all need to ponder:

"There is a principle which is a bar against all information,
which is proof against all arguments and which cannot fail to
keep a man in everlasting ignorance --
That principle is contempt prior to investigation."

-- Herber Spencer

It is very clear that NO ONE person on this forum has bothered to
truly investigate the MMA!

Shame on you all!

You are right, the math does not lie. And if you work the numbers
from the UFF soft ware, it all makes sense. Have you gone that far?

Consider this, the MMA is growing exponentially every month here in the US.

And from what I can see, it ain't about to get shut down.

If it was a scam it would have been stopped in it's tracks in Europe and Austrailia over 15 years ago.

jgd51 said: You are right, the math does not lie. And if you work the numbers
from the UFF soft ware, it all makes sense. Have you gone that far?

Consider this, the MMA is growing exponentially every month here in the US.

And from what I can see, it ain't about to get shut down.

If it was a scam it would have been stopped in it's tracks in Europe and Austrailia over 15 years ago.Learn to read, no one is saying MMA is a scam. But the outfits that pushs "special" software and setup fees are scam.

Just like there are mortgage scammer, HYIP scammer, etc... If you bothered to read the past threads links, MMA were very well received back when the interest rate made sense for doing MMA.

ioio said: for the reading challenged, what is the bottomline? I stumbled into this thread trying to find some information on if i should sign up on the bank of america mortgage accelerator program. I haven't done the math, or find out detail about it, but was offered a similar accelerator when i was with chase, i just want to know if there's a calculator out there for it. is this good, bad, or bad only if you don't move/refi, etc, etc...

hope this makes sense. thanks.
Bottom line is if you are charged a service fee for this, just do it yourself and send 1/12 extra with each mortgage payment. This is #5 of the Finance FAQ linked at the top left of this forum.