Money Merge Account FAQ - Mortgage Prepayment

Repaying a mortgage is one of the biggest tasks you can take on in a lifetime. And repaying a mortgage before time is not that easy either, even if you have the financial capacity to do so. Prepayment penalties and closing charges will drastically slash into the interest payment savings you achieve by prepaying a mortgage. What this situation needs is a contiguous series of complex and dynamic financial calculations which give you the exact figure you need to pay each month to achieve maximum savings. This monthly payment changes as per current interest rates, pending mortgage balance and other factors relevant to your account. This is where a money merge account (MMA) comes in.

A money merge account is an online account which replaces your savings or checking account, and adds in an advanced line of credit (ALOC) in between the MMA and your mortgage payment account. Put simply, the ALOC makes the payments towards your mortgage to achieve maximum savings by clearing your mortgage in an optimal manner, and payments made by you go towards paying off the ALOC.

Thus, you do not need to worry about how much to pay, when to pay and how to pay. It goes without saying that a money merge account will charge interest on payments made on your behalf, and management fees. But the aim here is to maximize savings by prepaying your mortgage without triggering penalties. The MMA software is fine tuned to achieve this and at the end of the day, you stand to gain a lot in interest savings, even after deducting the cost of the MMA. A standard ARM can be cleared in one third of the full mortgage period, using an MMA.

What you need to know about money merge accounts:

• No money is automatically deducted towards the mortgage interest or principal. You get to decide how much you can afford each month. Your paycheck goes directly to the MMA account, which then pays off all your bills, including payments to the ALOC, then come the interest payments and then, whatever is remaining, is paid against the mortgage principal.
• MMA programs have a startup cost, which is added to the cost of the mortgage. Please do your research and find out the exact terms of setting up your money merge account. Standard costs range in between $2000 to $4000.
• Talk to the financial organization offering you an MMA and work out the expected date of closure, and the amount of net savings you can achieve. You will generally be offered very specific dates and figures.

You can do this without signing up for an MMA, by doing the calculations yourself, and making payments directly to the mortgage account. However, this is generally very difficult to achieve, considering the complexity of the calculations. More importantly, with an MMA, your paycheck goes directly to the account, which pays the bills and transfers the balance to your mortgage. With a checking or savings account, where you have to make mortgage payments yourself, the normal tendency is to make the required payments and leave the rest in the savings account, or spend it. Please note that a money merge account is simply one of the ways you can achieve prepayment of your mortgage. You are advised to consult your financial planner or a mortgage specialist and consider all your options.