November 6, 2007

Will the United First Financial Money Merge Account Work On Interest Only and Negative Amortization Loans?

I received a call last week from an Agent in San Diego. This happen a lot since many Agents find my blog and website because the rankings I have on Google. I couldn’t tell you how many contact me thinking my office is the home office of United First Financial, but I’m always pleasant and willing to help out even though they aren’t part of my group.

Anyway, one of questions she has was, “Will the Money Merge Account work on an interest only loan?” She told me that a mortgage broker stated that the Money Merge Account won’t work on these types of mortgages or negative amortization loans. So, to clarify things I want to say that the Money Merge Account WILL work with interest only and negative amortization loans. How? Well let me explain…

The number one component that drives the Money Merge Account is discretionary income. This is not the only component, but the most important. As long as the client has enough discretionary income to cover the difference between what the fully amortized payment and the interest only or negative amortization payment are, then the Money Merge Account will work.

For example:

$200,000, 30 Year Fixed Mortgage at 6% = $1,199.10 monthly payment

$200,000, Interest Only Mortgage at 6% = $1,000.00 monthly payment

Difference between payments is $199.10 monthly.

In the above example, the difference between the payments is $199.10 monthly. Therefore, in order for the Money Merge Account to work for this person, they need to have at least $199.10 in discretionary income.

Now, discretionary income can come from a number of places. It is not just left over money once all your other bills are paid. It can also come from payments toward a debt.

For example, a person has $10,000 in credit card debt that they are paying $400 a month. The current rate on a Home Equity Line of Credit (HELOC) is 7.50%. If we were to put the $10,000 in credit card debt on the HELOC, the payment would be $62.50. The difference between these payments is $337.50. Therefore, the Money Merge Account would utilize a portion of the $337.50 towards the client’s discretionary income.

I actually just ran a Money Merge Account Analysis for a client who has a situation similar to the one above and they knocked 10 years off their interest only mortgage.

The same would hold true for someone with a negative amortization loan. As long as they have enough discretionary income to cover the difference between the minimum payment and fully amortized payment then the Money Merge Account would work for them as well.

I hope this clears up some misconceptions of the Money Merge Account. If you haven’t done so, let me run your Free Money Merge Account Analysis and see the results for yourself.