United First Financial Money Management Account
MMA MLM Example

As a review, the MMA software uses three basic strategies to save money and accelerate the mortgage payoff.  I have ranked the strategies in my opinion of their relative contribution to reducing the mortgage balance.

1. Paying a higher amount each to more quickly reduce the principal (90+%)
2. Using lower interest rate varaible credit to replace higher interest rate fixed debt. (0 -5%)
3. Optimizing idle cash flow by putting it to work against outstanding debt.  (0-5%)

My contention was that the strategies employed by the MMA could be closely approximated with my spreadsheet. without having to spend $3,500 on software.  Additionally, the things that make the  MMA program so complicated are also the things that have the least impact on the mortgage reduction for those with small monthly cash flows. 

A seller of the software wrote me and told me that the MMA would actually pay off the hypothetical $100,000 6.37% mortgage 19 payments faster than my estimate.        

Hi Scott,

 I looked at your spreadsheet  and ran the same numbers through the MMA software analysis and came out with numbers favoring the MMA system. 

 MMA results were as follows:

 MMA paid off the $100,000 First Mortgage + $3,500 balance on the HELOC for the MMA Fee in 119 months versus 138 on your scenario.

1. Total interest paid with MMA was $37,424 versus $41,344 on your spreadsheet.  Savings in MMA favor of $4,351. 
2. 19 month quicker pay off would equate to $11,847 savings in monthly payments. 
3. Net savings = $16,198  

Note:  What is frequently misunderstood and not calculated when trying to compare paying extra on to the principal amount each month versus MMA system are:

 The Leveraging aspect.  The MMA software will prompt the borrower to actually leverage money from the HELOC (Banks Money) over and above month to month discretionary income to make substantially larger payments to principal about every 2 to 6 months.  The borrower would make the minimum payments in the off months until balance on HELOC would become low enough for the software to prompt another large payment to principal.   

1. When making these large lump payments to principal the amortization schedule jumps ahead many months. This creates much higher payments to the principal portion of the minimum monthly payments in the off months.

 Because there are tens of thousands of users of this product and grow substantially each month, it is no longer a question whether this system works any longer.  It really is just a matter of understanding. 

 Please call or email if you would like to discuss further.  People as your self would be very successful as an agent for United First Financial Inc.

 Thank you,

 Dean

Needless to say I thought the MMA result was too good to be true.  My example used an extra payment of $400/month, and the work-up from the distributor showed only $296 in discretionary income to apply as extra payments to the mortgage.

I reviewed my numbers and his numbers and found a few minor differences. His HELOC rate was 7% compared to my 5.77%, and his monthly expenses were different.  The higher HELOC rate of 7% would actually hurt his case since there would be leveraging from a cheaper interest source.   These differences were however in the two area's of the program that give relatively little "bang for the buck" and could not account for the huge difference he presented.

I made a quick calculation and had the feeling the United First Financial MMA program had applied almost $270/month more to the mortgage than what I had used as extra payments.  I had numerous exchanges with the distributor and came to the conclusion that he had no practical understanding of the of interest calculations and how the whole scheme was supposed to work with leveraging the HELOC, when the HELOC rate is lower than the mortgage rate.   His work-up came with a amortization table showing how much debt was reduced and how much interest was paid in the first year.   I asked for the HELOC balance along the way but the distributor said it was unavailable.

The distributor's first explanation of the difference was a generic response:

"Simple Interest:
 
1. A $100,000 amortized loan at 6% is $599 a month.  A $100,000 balance on a HELOC is $500. 
2. Rates make little or no difference with MMA.  We are attacking the front end portion or the amortized loan much harder than you can out of your disposable income because of the leveraging factor. 
 
Key Reason Why MMA gets results quicker than paying a set amount every month:

The large lump some payments leveraged from the HELOC jumps the amortization schedule way ahead of the steady approach. When this happens, large portions of interest are canceled and the principal portion of the minimum payments are much larger."

This response made little sense to me.   Firstly, his comparison of the monthly mortgage payment of $599 to the interest due on a HELOC was nonsensical.   It is an apples and oranges comparison.      The $599 mortgage payment included a $99 principal payment and the $500 on the HELOC was interest only.  Additionally his example had a HELOC interest rate of 7% and the mortgage rate was 6.77%.  No one will save on interest costs borrowing on an extended basis at 7% to pay off debt at 6.77%.   Despite sending him a spreadsheet simulation showing that when the HELOC and Mortgage   interest rates were the same, that prepayments using a HELOC would bring no benefit, he still did not accept the fact the HELOC was not the reason for the big difference.  I found the annual HELOC balance in page four in a bar graph of the work-up .   This confirmed that the HELOC was barley being used, precisely because of the fact that it would be more expensive to use on a long term basis.  The distributor was really clueless on how the MMA system functioned and was unaware of the basic rules the system would use to optimize payments.    Rule number one is that when the HELOC rate is higher than the mortgage rate, you do not borrow from it to pay off your mortgage.  You can float some expenses for less than a month waiting for a pycheck to hit your account, but that is about all you can do with it when the HELOC rate is higher than your mortgage.

The distributor was now at wits end and was still unable to explain why the MMA system was so much more powerful than my estimates and he gave up.    He just wanted me to take it on faith now and buy a subscription to the service from him.

It is interesting to have an exchange with these folks since some of them really have little understanding of the mechanics of program, or math, and can only fall back on meaningless and Gobbledygook cliches they have learned from others in the business. 

I vowed to him I would plod on and find the reason for the difference, even if he did not want to help anymore.  So I went back to where I first started and that was using the amortization schedule from the work-up .  The work-up calculates the users monthly discretionary  income based upon net income ($3,000 in the example), the mortgage payment  ($623.54 in this example), $1,870.46 in monthly expenses and $210/month in escrow payments.  The program then determined this situation to have $296 in discretionary income.

I did a yearly cash flow analysis.  I found that for the first year the debt reduction and interest paid was $15,534 ($1,294/month on average).  Using the other assumptions of expenses of $1,870.46, and Escrow payments of $210/month comes to a total of $24,965.52 per year.   The total annual outgoing cash flow was $40,500 instead of the $36,000 income assumed.   The MMA program appeared to have arbitrarily applied an extra $375/month to the payments which was simply unavailable from the cash flow in this example! 

I of course sent this cash flow analysis to the distributor but he still cannot explain it.   He thinks he is leverageing $30,000 from the HELOC to produce the great benefit.   I called the company and they will not help you either.   You get referred back to the distributor.   The distributor and his upline never did contact me once I found the flaw in their example. 

If you use the payment cash flows that the MMA analysis does, without a HELOC and all the fancy money shuffling, anyone can beat the MMA program hands down and save the $3,500. 

The MMA program took 9.9 years to payoff, had $3,500 in software costs and $37,424 in interest costs.

Just making the same payments once a month, which the  MMA paid bi-monthly, the mortgage was paid off in 9.3 year, and had $32,485 in interest costs.   The MMA program would cost the user an additional $8,439!

Maybe there is another United First Financial Rep. that really understands the numbers and can discuss this better than this one.