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.
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
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UFF's $3500 up-front fee is ridiculous. In fact, it is unlikely that salary float through a HELOC is smarter than salary float through a high yield savings (HYS) account. That said, here is the FW way to set up and use the money merge account, for free:
1. Find and set up the best HELOC you can. Look here. 2. Direct deposit your salary into the HELOC 3. Pay-down your highest interest rate debt with a one-time transfer from the HELOC with an amount equal to one month's salary. Do this around the time your salary deposit arrives into the HELOC. 4. Pay your bills from the HELOC, as close to the due date as possible, BUT DO NOT cut it so close you are hit with late fees. 5. Any HELOC balances above 0 on your salary deposit day are either salary you did not spend (good for you !), or the couple of dollars this scheme is netting you. Invest the positive balance wisely, or send it to high interest rate debt for faster pay-off. 6. Want to know how you are doing ? Use this calculator.
Before you go through the hassle, realize that a $3000 salary will net you about $5 a month, a $6000 salary about $10 a month, etc based on a 6% home loan and 8% HELOC. If instead you put your salary into a HY checking or deposit account (3% as of March 2008), you will make about $4 a month with a $3000 paycheck, or $8 a month with a $6000 paycheck.
Oops Mortgage Accelerator under fire; Australian Securities and Investments Commission taking action against mortgage brokers. US promoters are correct to say that this program was sold in Australia before it was “discovered” by US borrowers. However consumer organisations such as ours, and our national financial services regulator - Australian Securities and Investments Commission (ASIC) - concluded years ago that there were no savings to be made, and that promoters were engaged in unlawful conduct. Examples and charts showing massive savings have all been shown to include significant increases in payments being made to the mortgage (in addition to the funds deposited temporarily). Any savings made by depositing regular salary into the LOC amount to possibly a few hundred dollars per year, and unless the borrower has significant funds to deposit, these savings are less than the additional interest paid on the LOC - even if the LOC is quite small (say $50,000). Borrowers who pay any money for software, monitoring or other services, are often thousands of dollars worse off.
I don’t personally know anyone who has used a LOC in this way, apart from consumers who come to our agency for assistance.
Our regulator ASIC says, on its website:
“in reality there is no magic trick or secret type of loan that will let you own your home sooner. Substantial savings are only achieved by consistently making additional payments on your mortgage. You therefore need to be very careful when brokers claim that you can own your home sooner and make substantial savings by using a line of credit mortgage facility.”
ASIC has taken action against mortgage brokers promoting this type of product, as well as companies providing calculators to consumers and brokers. This action has resulted in:
* The withdrawal of a LOC Calculator that was on over 100 websites; * Changes being made to a “Simulator” Calculator * Court orders (by consent) against a company promoting “mortgage reduction”, including orders that the company write to past customers advising they may have a right to claim loss or damage caused by misleading and deceptive conduct.
The misleading and deceptive conduct included showing clients comparisons between loans arranged by the company and standard loans, that represented that by switching loans they would save money and pay off their home loan sooner but failed to adequately explain that to obtain this benefit clients would need to make extra repayments.
Despite the action from the regulators above, there is still some promotion of this type of scheme, but much less than in the US.
No credit for misleading loan calculators We acted to close down loan calculators on more than 100 websites of Australian financial institutions, including banks, credit unions, other lenders and finance brokers. The calculators suggested that using a line of credit will result in the consumer paying off their home loan more quickly.
7-95 ASIC obtains injunctions against loan calculator operator
Thursday 12 April 2007
ASIC has obtained orders in the Supreme Court of Queensland today against Gold Coast company, Etracka Pty Ltd (Etracka), following concerns over a loan calculator licensed to mortgage brokers throughout Australia.
These orders follow allegations by ASIC that the information provided by the company’s Express Simulator calculator was false, misleading or deceptive or likely to mislead or deceive.
The Express Simulator is currently accessible to members of the general public via a number of mortgage brokers' websites. It is also accessible via a website operated and controlled by Etracka located at www.etracka.com
The Court ordered that Etracka add a warning to Steps 1 and 4 of the Express Simulator, and to the Simulation Express Report which is subsequently emailed to the user of the calculator. This warning will now advise users that if they have not elected to make an additional monthly repayment into the Non-transactional Loan (which is as high as reasonably possible having regard to the user’s financial circumstances and the terms and conditions of their loan), the calculator will not provide a reliable comparison between a Non-transactional Loan and a Transactional Loan used in accordance with the eTracka Strategy.
The Court also ordered that Etracka send corrective notices to its members, clients, and licensees, and users of the Express Simulator calculator within seven days.
And there's plenty more [Ellory]
Message edited by: EricGo07 on 2008-02-29 17:04:18 CST
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)?
talljay said: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)?
So you don't have debt. People here are so short-sighted and self righteous. Not everyone wants debt. Guys don't get rich having debt. Guys may make a little more here and there but there are risks and time associated with going into debt. While one philosophy is not better than the other, there are many peopel on this board who have no debt a piad off house and just put their money into investments. You lose your job and you have no debt or house payment it is a lot easier to maintain your lifestyle.
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.
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
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.
mikef07 said:To some, any debt puts a ton of pressure on them so in that sense all debt is the same.All people have at least one brain cell, so in that sense, all people are the same. Moreover, tadpoles have at least one brain cell, so in that sense, tadpoles and people are the same.
SiS's title seems self explanatory: if a scam is out there to save mortgage interest, discuss it here. Hopefully in the future mini-summaries of each scam will be put in the summary post area.
I really do not know how so much discussion has been generated around these trivial ideas:
offset: The idea is to play musical chairs with three accounts: A fixed rate home mortgage, a HELOC, and the paycheck. The idea is to use the HELOC as a checking account that goes from a balance of 0 when the paycheck of X is deposited, to a balance of -X just before the next paycheck is deposited, because a SINGLE payment of X was made from the HELOC to the fixed mortgage loan at the beginning of the 'program'. To figure out whether this last approach will save you money over a year, calculate the average daily balance for a month on the HELOC, and multiply by the HELOC's interest rate. Subtract this amount from X times the fixed rate interest note rate. The monthly cash flow is evident from looking at a couple of months of balances in a checking account. Simpler and better, however is to deposit the paycheck in a HYS account, and draw down the HYS as needed.
Accelerator: Complete BS. The scammers ask you to pay 1/2 your monthly payment every two weeks, leading to 13 monthly payment equivalents a year, instead of 12. People do not need a 'program' to realize that paying more into a mortgage, will pay it off faster.
Addendum: I have deleted a statement that sending money to the mortgage earlier in the monthly cycle has advantage -- this is not true for most 1st mortgages. Thanks to berlinsmommy for the correction.
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.
can someone good at math show me some numbers (120K household salary - average two person): 6% APR 15 year conforming mortgage say 300K - pretty average - extra $500/month paid towards principal or 6% APR Savings $500/month
which yields better?
Please factor in income tax benefits/results. I suck at the whole amortization/interest/tax part of this.
I think thats why people think the HOA are good, its hard to calculate to the penny which yields best.
I guess i could find a calculator to do the amortization schedule with +500 principal versus the normal payments? but those don't consider income tax deductions? or do they?
Then the 6% APR Savings i guess there's a calculator for that but how does the IRS factor into it over the years?
rigor said:can someone good at math show me some numbers (120K household salary - average two person): 6% APR 15 year conforming mortgage say 300K - pretty average - extra $500/month paid towards principal or 6% APR Savings $500/month
which yields better?
Please factor in income tax benefits/results. I suck at the whole amortization/interest/tax part of this.
I think thats why people think the HOA are good, its hard to calculate to the penny which yields best.
I guess i could find a calculator to do the amortization schedule with +500 principal versus the normal payments? but those don't consider income tax deductions? or do they?
Then the 6% APR Savings i guess there's a calculator for that but how does the IRS factor into it over the years?
Standard deduction? Itemized? Children? IRA contriubtions? State Tax? etc. etc.
Rough estimate, paying mortgage is better since you don't pay taxes that. However the 6% savings rate is sure to vary over the years. Penfed had a 6.25% CD back in Jan. '07, maybe Jan. '08 will see 7%. Anyway over 15 years, you'd probably be better off going the stock market and (hopefully) getting capital gains tax rates instead of marginal tax rates.
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.
Berlins, thanks for the clarification. I wondered about this after I wrote the post. I don't think it has anything to due with simple vs compound rates though --
Would you mind writing the exact language from your contract that supports your conclusion ?
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?
EricGo07 said:Berlins, thanks for the clarification. I wondered about this after I wrote the post. I don't think it has anything to due with simple vs compound rates though --
Would you mind writing the exact language from your contract that supports your conclusion ?
I can't quote any language, but I can say that I pay my IO loan payment between the 12th and 15th, which is due on the 1st, standard grace period to the 15th, and that our outstanding balance is exactly the same as it was when we closed in January.
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