One who asks a question is a fool for five minutes; one who does not ask a question remains a fool forever. - Chinese Proverb
Questions most people ask.
Q: Is this for real?
A: Absolutely. This type of account was first offered by the National Australia Bank in the 1980’s – currently 1/3 of all mortgages in Australia are this type. Richard Branson and the Royal Bank of Scotland began offering this type account in Great Britain in the late 1990's as the One Account, which was voted the “Best Lifestyle Lender of the Year” in 2005 by Mortgage Strategy Awards. The concept of the One Account is that the homeowner finances the home in an equity line of credit, deposits income into it and writes checks out of it. This puts every penny, not being spent, to work to keep the principle balance of the loan down, thus saving interest. In 1999, research from NOP Financial and David Goldreich of London Business School proved that eight out of every ten people in the UK with borrowings of more than £50,000 would be better off with a One Account mortgage.
Q: How does it work?
A: It is really very simple. Basically your savings, checking and mortgage accounts are combined. Let’s say that you have a $150,000 mortgage, you earn $5,000 a month and you have $10,000 in savings. Currently, your checking account earns no interest, your savings account earns 2% to 3% and interest is calculated every day on your mortgage balance with up to 90% of the payment applied to interest.
In a Mortgage Savings Account, as soon as your $5,000 paycheck is deposited into your account, it effectively lowers your mortgage balance from $150,000 to $145,000, so daily interest is calculated on $145,000 instead of $150,000 – $5,000 may not sound like a lot, but because 90% of your payment is paying interest – that $5,000 paycheck could save you as much as $50,000 in interest. Your $10,000 in savings is also sitting on the mortgage account and lowers your balance from $145,000 to $135,000 and again because 90% of your payment is going to interest that $10,000 in savings can save you $100,000 in interest.
Q: Do Mortgage Savings Accounts work for everybody?
A: Mortgage Savings Accounts works for most homeowners, but not all. For instance, if you are spending more money than you are making every month, it is difficult to make the system work. If you are in this situation we may still be able to help.
A Mortgage Savings Account works really well for homeowners that have refinanced within the last 10 years. Mortgage avings Accounts are saving an average of $150,000 in interest and getting them completely out of debt in an average of about 7 years. Mortgage Savings Accounts also work exceptionally well for homeowners with high income and high debt. Doctors, dentists, lawyers, pharmacists, small business owners and other professionals that have student loans, higher end vehicles and larger homes can often save $500,000 to over $1 million in interest.
Q: Is this similar to Mortgage Acceleration, where you pay an extra $50 or $100 or twice a month?
A: No. We don’t advocate that you use mortgage acceleration programs for 3 reasons. First, when you pay extra payments, you are taking money out of your pocket and giving it to the mortgage company. Second, you lose access to that money unless you sell your home or refinance your home. And third, mortgage acceleration programs actually increase your risk. If you lose a job or get injured and can’t work, or for any other reason are unable to make your mortgage payments, in about 3 months the mortgage company will foreclose on your house and you could lose all of the extra money that you paid. With a Mortgage Savings Account, your money is effectively sitting on your mortgage and saving you interest, but you still have complete access to it and control over those funds. If an emergency arises your money is available for you to use.
Q: Do I need to refinance to use this account?
A: No, a Mortgage Savings Account is created within an account with your bank. There is no need to refinance your mortgage. We help you create the account and train you to use it. If you need to refinance for some reason you can, but we don’t recommend it unless you need to get out of a bad mortgage.
Q: Why don’t you recommend refinancing?
A: Because in many cases it wipes you out financially. The average American family refinances their home every 3 ½ years and can literally destroy their financial lives.
For example, if you bought a home 10 years ago for $150,000 with a 30 year mortgage at 8% and refinanced it every 3 ½ years because the interest rates dropped by 1%. Assuming total refinace fees were $4,000, in 10 years you would pay $129,000 towards $150,000 loan and have only $2,000 in equity and you would still have to pay over $300,000 over the next 30 years. As absurd as that sounds, that is precisely what many Americans are doing. If you had not refinanced at all, you would have paid $135,000 which is $6,000 more, but you would have $19,000 in equity vs. $2,000.
It gets even worse if you project it out over a lifetime. If current trends continue and you refinance your home every 3 ½ years, you will pay close to $1 million for housing and never own your home. You will have to continue making mortgage payments after you retire. If you didn’t refinance and paid your home off in 30 years, you will cut that lifetime housing cost to around $400,000.
Now let’s compare that to what Mortgage Savings Accounts are able to do for many homeowners. Instead of paying $1 million over a lifetime and getting nothing or paying $400,000 over 30 years and finally owning your home, you could be completely out of debt in 5 to 10 years and save them hundreds of thousands of dollars.
Q: What should I do to create a Mortgage Savings Account?
A: The best way to discover if a Mortgage Savings Account will work for you is to submit your information for your Free Personal Financial Profile by clicking here. Your Free Personal Financial Profile will give you an exact estimate of how much mortgage interest a Mortgage Savings Account can save you and how fast you can be completely debt free!