You can use the Money Merge Account (MMA) service from United First Financial to reduce both the amount of interest you pay over the term of the loan as well as the length of the payback period. A combination of the saved interest and the cash accumulation after the loan is paid, will give you a buffer that will come close to, or even far exceed the drop in your home value that has occurred over the last year or two.

The best way to illustrate this is with an example. The table of data assumptions is shown below. In brief, I’ve taken a $600,000 home that has lost 25% of its value, resulting in a current value of $450,000. The 5% mortgage has been paid for 29 months of a 30 year term (to date: capital paid $22.174 & interest paid $71,233). The home owner has some money in checking and savings account and has a small credit card balance. After all monthly expenses, the home owner is left with $500.

To put the effect of this drop in value in perspective, at the original value, the total interest that will be paid during the standard life of the loan will be 93.3% of the original house value (i.e. of $600,000). With a reduced value of only $450,000, that interest will become 124.4% of the new value, which equates to an increase of approximately 1.4% on the interest rate being paid. Using the Money Merge Account (MMA) program will result in interest saving that will lower the interest, as a percentage of the value (the lower $450,000), to 87.3%. This equates to a reduction of approximately 0.3% in the interest rate being paid.

Extrapolating the interest paid and interest rate improvements, that the MMA program can help the home owner achieve, to actual dollar amounts, in this example, the homeowner is going to benefit to the tune of almost $380,000, more than double the loss in home value. The chart below shows the various aspects that lead to this conclusion.

1. Under the old arrangement, the homeowner is going to pay $488,342 in interest during the remaining term of the loan. With the MMA system, the interest still to be paid will be $321,560. These figures result in the final, total payments that will be made during the complete life of the loan to $1,159,576 (current plan) and $992,794 (with the MMA plan). A saving of $166,782.
2. If the homeowner does not choose to use the MMA service, $500 per month will be available to invest each month for 331 months, which is the life of the loan as it is currently structured. With the MMA system, the homeowner will be able to start investing that $500 only once the loan is paid off after 228 months, for a period of 103 months (331 – 228). But at that stage, all regular monthly payments, namely $3,330.93, that were being made to pay off the loan, will also be available to be invested. Using a nominal 3% return, under the current conditions, the home owner will accumulate $257,046 while, with the MMA program’s assistance, a much higher amount of $469,782 will be banked.

With the Money Merge Account system, the homeowner will realize $636,564. Without it, the end result will be only $257,046   -  

the MMA path is $379,518 more!

That increase in equity is more than twice the value of the loss in home value.

Considering that we give a free analysis to determine whether the MMA system from United First Financial can help those in debt, it is prudent for every homeowner to take the time for the evaluation. For a homeowner in an underwater mortgage situation, it is not only prudent, but critical as a first step in rebuilding equity.

(Notes: (a) I do not provide accounting, tax, legal, real estate, mortgage, or investment advice. Any information provided here is simply a statement of facts. (b) Some figures have been rounded up the nearest dollar. (c) The methods and figures used and calculated have been double checked; any remaining error/s will not be significant enough to alter the conclusion expressed herein.)