Money Merge Accounts: Are They A Good Deal For Home Borrowers?

Yesterday, a reader wrote to me and asked about money merge accounts and whether or not they are a good deal for homebuyers. Of course, this means that I popped open my trusty spreadsheet and started doing some calculations.

In this article

    What is a “money merge account”?

    A “money merge account” is a special home equity line of credit placed on your home. Every time you receive a paycheck, the whole thing goes straight towards first paying off any balance in your money merge account, then the entire remainder of your check goes towards paying the interest, then the principal of your home loan. Let’s say you had a mortgage with $1,500 payments and you set up a money merge account. Each month, you received $3,500 in paychecks, but only spent $1,200 (and sometimes less). That means that automatically $2,300 (and sometimes more) goes towards that mortgage each month – an extra $800 towards principal every single month. This means a 30 year mortgage would be paid off in 13 years and two months.

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    Here’s the catch: to get into this program, it’ll cost you. I examined several money merge account options online and the rates varied from $1,800 to $4,500, with the average coming in around $3,000 to get started. This is added to the principal of the loan.

    In other words, the fee adds about $20 to each minimum payment over the life of a loan, and in the accelerated calculation means that you’ll make almost exactly another month’s worth of payment – it will take you 13 years and 3 months to pay it off.

    On the other hand, you could theoretically do it yourself. Start using a high-interest checking account (like Electric Orange, which gives you 4% interest) and then send every cent you can to the mortgage payment. Going back to the earlier scenario, if you always kept $1,000 in there as a buffer, got paid your $3,500 at the start of the month, spent $1,200 throughout the month, then sent off everything down to $1,000 at the end of the month to your lender, you would pay an average of $813 extra each month (that extra $13 comes from interest on the checking account). Given those numbers, you could pay off the mortgage in just barely over 13 years (the final payment is a tiny one).

    Money merge alternatives

    Money merge accounts might seem like a good idea. After all, who doesn’t want to pay off their mortgage early? But there’s an alternative you should consider before you dive in: doing it yourself.

    Start using a high-interest bank account and then send every cent you can to the mortgage payment. Going back to the earlier scenario, if you always kept $1,000 in there as a buffer, were paid $3,500 at the start of the month, spent $1,200 throughout the month, then sent off everything down to $1,000 at the end of the month to your lender, you would pay an average of $813 extra each month (that extra $13 comes from interest on the checking account). Given those numbers, you could pay off the mortgage in just barely over 13 years (the final payment is a tiny one).

    Although that seems like a better financial deal than a money merge account (and it is), it has one huge risk: you.

    As we’ve discussed before, individuals are a huge risk because of their desire to spend money that’s “just sitting there” in an account. It wouldn’t take much at all over thirteen years for you to take money that’s already yours and spend it on something else.

    One psychological advantage of a money merge account is that it encourages frugality. Why? It puts you in a situation where every dollar you spend basically goes onto your mortgage principal. See that bag of chips at the store? Is it worth it going onto your mortgage? You can use your own home as a psychological tool to be thrifty – and thus get out of the mortgage sooner.

    If you have a lot of financial discipline, doing it yourself is a better deal than a money merge account. However, if you’re prone to spending extra at all and have found yourself saying, “Well, I have plenty extra right now, so I can afford it,” then a money merge account is probably the fastest way available to you to pay off your mortgage.

    Should you get a money merge account?

    A money merge account can be an effective way to pay down your mortgage in less than half the time it would normally take you. Still, there’s nothing stopping you from going through a similar process without the costly software. So how do you decide which route is right for you?

    Consider the upfront cost and decide whether you really want to put that money toward a tool to help you do what you could do yourself for free. The thousands of dollars you could potentially spend on the money merge account is money that you could put toward your mortgage instead. If you’re looking at options on the costlier end, you could be talking about half a year of mortgage payments, depending on your payment amount.

    The one time that a money merge account might make sense is if you know you lack the discipline to make those extra mortgage payments yourself. Just because someone can pay their mortgage down early doesn’t mean they will. When you have that extra money available to you, it can be tempting not to spend it on something else.

    Although that seems like a better financial deal than a money merge account (and it is), it has one huge risk: you. As we’ve discussed before, individuals are a huge risk because of their desire to spend money that’s “just sitting there” in an account. It wouldn’t take much at all over thirteen years for you to take money that’s already yours and spend it on something else.

    One psychological advantage of a money merge account is that it encourages frugality. Why? It puts you in a situation where every dollar you spend basically goes onto your mortgage principal. See that bag of chips at the store? Is it worth it going onto your mortgage? You can use your own home as a psychological tool to be thrifty – and thus get out of the mortgage sooner.

    If you have a lot of financial discipline, doing it yourself is a better deal than a money merge account. However, if you’re prone to spending extra at all and have found yourself saying, “Well, I have plenty extra right now, so I can afford it,” then a money merge account is probably the fastest way available to you to pay off your mortgage.

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    Trent Hamm

    Founder & Columnist

    Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

    Reviewed by

    • Angelica Leicht
      Angelica Leicht
      Mortgage Editor

      Angelica Leicht is an editor at The Simple Dollar who specializes in mortgages, mortgage refinancing, home equity loans, and HELOCs. She is a former contributing editor to Interest.com and PersonalLoans.org.