Problems With Money Merge Accounts

The stated purpose of a money merge account is to reduce the number of years required to pay off your mortgage, thus saving considerable interest costs. Though the goal is to save money, the high fees associated with these accounts call cost savings into question.

Identification

A money merge account is another name for a mortgage accelerator program. The lending institution provides a revolving home equity line of credit that you use to pay off part of your mortgage principal. This reduces the interest you will pay each month over the life of your mortgage.

You deposit your paychecks with the lender and use a credit card for all your daily living expenses. The lender makes your mortgage payment each month and pays your credit card expense. Whatever is left over goes to pay down the principal of your mortgage. If you have a mortgage payment of $1,200, living expenses of $1,800 and receive paychecks totaling $4,000 each month, $1,000 will go to reduction of your mortgage.

High Initial Costs

While some home equity lines of credit can be obtained at little or no cost, others are expensive. Some will have higher interest rates than on your initial mortgage. Of course, you will be required to pay interest on the credit line. With some of the lenders, you will be charged a start-up cost of several thousand dollars.

Do It Yourself

The program is supposedly designed for people who cannot save money without help. Critics think the program is a scam because you can do everything in the program on your own. You will save money on fees and up-front costs. You can get a home equity loan without joining a money merge program. You can make additional payments for mortgage reduction without paying fees for outside help.

Loss of Control

Since a money merge account essentially requires you to give up control of your income, you may not be able to use your remaining funds each month for other goals besides shortening the length of your mortgage. Later, you may decide you want to establish a retirement fund, pay for your child's educational tuition, meet emergency medical expenses or redecorate your living room. You also lose the flexibility to refinance through other lenders.

Other Problems

The promise of how many years early your mortgage will be paid off is not likely to be borne out by experience.

Also, the amount of money you save by not paying as much interest on your mortgage will be reduced because you will have less to claim as a tax deduction.

If the lender making the payments misses one payment or is late in paying, you, not the lender, will be held responsible.

While a money merge account may be useful for a few people who have trouble managing their expenses, it has disadvantages that make it undesirable for most others.