Mortgage acceleration, current economy and frozen HELOC

IMO they should require the reporting of the higher of the highest credit limit ever on the account or the highest credit ever used.

Mike King:

I'm torn on the whole issue. I believe very strongly in mortgage acceleration. JUst not sure if I'd recommend it in todays market. I showed a client two years ago who had a 5.75% 30 yr fixed the mortgage acceleration product from CMG and he calls me every time the 1 month LIBOR drops to tell me how thankful they are to be in the product. Currently they are at 1 mo. LIBOR + .75 margin. The product is a 1st lien HELOC and hasn't been frozen. In two years time he's paid off more principal on his loan than he did in 6 years at his old 30 yr fixed at 5.75%. The husband just lost his job a month ago so he's extremely thankful he can tap his homes equity if he needs it. 

On the other hand, I don't know if anyone should be paying more than interest only on their mortgage with home values continuing to fall. It seems like a waste of money when they could be using the portion thats going towards principal to build up an emergency account or pay off credit card debt. 

Most people think home equity is a safe investment and tend to forget that a homes value has no bearing on their current mortgage balance. I talked with a potential client last week who spent their life savings ($100K) as down payment to buy their dream home in Florida last year and now thats been completely wiped out.

I'm sure that in hindsight they would have been better off if they didn't put as much money down and kept their savings in a more liquid account other than their home.

You bring up a very valid point for today's market...

Here's the deal - MMA, maximum leverage and investing, or whatever the financial idea, concept, or approach - It is Not cookie cutter...

What is the clients goal???  Do they want to pay off the house or are they only plan on being there for a few years??? 

What is their risk tolerance??? Are they comfortable investing home equity in the market???  Are they comfortable with a variable rate product???

What type of financial practices will allow them to sleep at night???  Are they comfortable having their only source of cash tied up with 1 financial institution that may or may not freeze access to it???

Hindsight is always 20/20...I was reading earlier on Technology - once you buy a technology-related product you have to be satisfied with your purchase and the time you went to buy it because it will definitely be cheaper the next time you look at it...Along the same lines - you make the best decision with all the information that you have at that time...if it was better for you to own then rent, then that was the best decision based on the info at that time...

I suppose the thing about MMA at the end of the day is interest cancellation - and the only way to achieve that is to utilize as much cash that you have to cancel it out...so if you don't put the money down, if you don't do a HELOC or LOC, then you are not cancelling interest and actually costing yourself more money...

I cannot agree with you any more, Bobby!  When I was first introduced to the program I thought it was simply a scam.  It was not until my third and yes I said third presentation that I had my epiphany.  In 1997, I formulated the concept of paying off a mortgage quick by simply applying and additional payment prior to the first compounded payment was due.  This is just math and nothing more.  I was astounded by the progress one can make versus the highly touted bi-weekly payment program that was being pushed at that time.  By utilizing the MMA program you have tools to be proactively accountable for all your monthly expenditures and savings. 

With regards to the concerns about a frozen HELOC, the program has recently introduced some upgrades that negates the need for a HELOC.  The primary basis for the success of the program is that it utilizes simple interest. The program will now allow a person that does not or cannot obtain a HELOC, to utilize a credit card or multiple credit cards if necessary.  Regardless, the same principal concept applies.  Borrowing money based upon a simple interest rate and applying it toward the principal fully amortized balance.   If anyone has any additional questions please feel free to direct them my way.

Hey Philip, make your font a little bigger...

Credit card???...I'm a little concerned, but please do share...

I thought this might get someone’s attention.  The principal behind this entire program is the difference between the ways interest is calculated. The reason for using a HELOC is that is calculates interest using simple interest or the Average Daily Balance.  The exact principal applies with a credit card.  If you can borrow money against a HELOC or credit card and apply this amount toward the balance on the mortgage you have accomplished two feats. 

One:  You have just reduced or truncated the loan by applying the funds toward the end of the mortgage, in essence paying it off sooner.

Two:  You have permanently altered the amount of principal that is being applied with the monthly payments. 

In summary you have shorten both the end of the loan PLUS increased the principal contributions on the front of the loan.  You have just begun the process of paying off your mortgage quicker.

The MMA program allows you to utilize the four basic concepts of banking.

1.     interest accumulation

2.     interest float

3.     interest cancellation

4.     strategy payoff

I know that this might be a difficult concept to grasp, it took be sometime to figure it out, but please remember it is just math.