Comments on: Mortgage Buster: Scam or Savior?

By: Michael

Michael — Thu, 30 Jul 2009 19:47:53 +0000

@Joe: You make excellent points. The main reason the Mortgage Buster system works is because you are using FLOAT and the banks money for “free” by utilizing credit card grace periods. This is what the banks do with our checking and savings accounts…they “sweep” the money out, loan it at much higher interest rates and “sweep” it back in. They know your average daily balance (along with millions of other bank customers) By changing the method that we, as consumers use OUR money we begin to use the same principles as the banks.
@Ben: I agree with you – $3500 is a HEFTY fee to pay for software. We feel that the information should be free and the software should be affordable to everyone who wants it. This is why we offer free videos on how this system works, and I invite you to check them out for yourself at MortgageBuster.com To accomplish mortgage acceleration/elimination without software can be done, but is very tedious and subject to errors. Proper software takes into account changes in income, expenses, interest rates, etc on a monthly basis and continually revises the plan accordingly. By the way, our software costs only $497 for the life of the mortgage. Other misconceptions: it does NOT have to be a HELOC, or a new loan. It can be self-funded. BUT, extra cash is required (even $1,000-$5,000 will work, but $8,000-$10,000 is optimum). This is what “fuels” the accelerated paydown of the loan, and one must be taking in more money than they are spending. Mortgage Acceleration is definitely not for everyone.

By: smokey1046

smokey1046 — Sun, 12 Oct 2008 10:04:26 +0000

The idea of that avoiding paying as much interest allows one to pay off a 30 year loan in 7-12 years, while making the same amount and number of monthly payments seems impossible.
i.e. I have a 30 year fixed $340,000 mortgage at 5.875 my P & I payments are roughly $2000 per month. After 30 yrs, 360 payments, i will have paid $720,000 total; $340,000 for principle, and $380,000 for interest.

However, if, under this new payment system, I pay $2000 for 10 years (120 payments) I would only pay back $ 240,000 total. That is way short of paying for the 340,000 principle borrowed, never mind any itnerest! I would have to pay for at least 15 years even if no interest at all is charged just to pay the principle off.

By: Welcome to the Rebrand! Hanks Weekly Hangouts #41 (August 4, 2008) | MiB Smarter Money

Mon, 04 Aug 2008 08:08:22 +0000

[...] 9. MilkYourMoney presents Mortgage Buster: Scam or Savior? [...]

By: Ben

Ben — Fri, 01 Aug 2008 00:30:45 +0000

@ Joe: I see your point and agree that this is a little simplified, but you make an excellent point. Do you think there is a correct time and place in which this can be used (ie, when the market is better, when loans are cheaper, etc).

Some part of me thinks that this seems risky because if something happens and you are not able to make a payment somewhere, it could mean a sharp downward spiral. Can you think of any everyday instances where this system would crumble?

By: Joe

Joe — Thu, 31 Jul 2008 23:57:45 +0000

The system here is not magic and you can do it yourself.

1) Get one or more credit cards with as long a grace period as you can manage.
2) Get a mortgage with as large a HELOC as you can manage. It must exceed the balance you would EVER have in your checking account. Ensure you can pay the mortgage and the credit card out of the HELOC.
3) ANY income you get put towards balance in the HELOC and then primary mortgage if HELOC is 0.
4) ANY expense pay with credit card if you can, HELOC if you can’t.
5) Pay credit card on last possible day.

The result is that you are using time shifting to reduce the principal and therefore interest payed. If this system is used perfectly, of the reduction in principal will be the size of one monthly mortgage payment plus the average credit card balance plus your average checking account balance. If you add this up and calculate compound interest over the life of the loan, it will yield you the MAXIMUM total savings vs. “the normal way”. (to math geeks: I know this is over simplified in regards to the math, but it is close)

Personally, I don’t like the idea of not having a real savings. Any savings is imaginary and when spent is really a loan secured by home equity.

By: Frank

Frank — Thu, 31 Jul 2008 18:18:47 +0000

@ Jana: “Consumers are better off just sending the $3500 to the mortgage company as a principal reduction. Software is not going to tell you anything that your mortgage statement and a calculator cannot.”

I couldn’t agree more, this is exactly what I was thinking the more we dived into these types of products. You also raised a good point about who these types of products are marketed to – those that are always looking for the next big thing. Impressionable people should constantly remind themselves to research further before diving into new products, especially financials where track records are so valuable and common sense almost always takes the upper-hand.

By: Ben

Ben — Thu, 31 Jul 2008 17:50:01 +0000

@ Jana: Excellent feedback! Thanks for illuminating us further on this. The whole thing seemed confusing and the sites that pitch this do a pretty good job of painting a rosy picture. Thanks again for your .02, they are definitely worth more!

By: Jana

Jana — Thu, 31 Jul 2008 17:01:51 +0000

Many mortgage brokers and companies hawking this kind of deal, the first lien home equity line of credit (HELOC). It takes several forms, depending on who it is that is making the pitch.

You’ve raised a lot of good points here, so I won’t belabor the issue by repeating them. Having just exited the mortgage world to raise my daughter, I can say with some certainty that this type of loan is taking the place of the now-maligned “Pick-a-Pay” or “Payoption ARM” loans as the “hot” mortgage product. One of the reasons that the payoption was so popular among brokers was because of its profitability (at the time, now it’s poison). The company I worked for closed hundreds of payoptions, primarily because the brokers found them to be the most profitable. It had nothing to do with the well-being of the borrower, which many are discovering now as their negatively amortizing loans are compounding the pain of a declining market.

Since the first lien HELOC is now their loan of choice to push with borrowers, it’s pretty clear that this is the most profitable type of loan to offer in this difficult market. The client that we catered to was the “savvy investor,” the proactive borrower looking for the next big thing. The reason these clients were targeted were due to their propensity to be taken in by this sort of sales pitch.

There is nothing, I repeat, nothing, in these software packages that will help you pay down a mortgage faster. The only thing that pays down a mortgage ahead of the traditional amortization schedule, is, you guessed it! Sending in extra payments. The software may track things for you, but if you’re really into this kind of loan (and it may be beneficial for some few, just like the payoption was), you can do it with any number of mortgage companies that offer it as part of their regular product lines. Instead of some bogus software, they just charge discount points. Either way, you pay. Consumers are better off just sending the $3500 to the mortgage company as a principal reduction. Software is not going to tell you anything that your mortgage statement and a calculator cannot.

Additionally, since the loan is adjustable, you’re subject to changes in the indices, which of course, show signs of increasing, not decreasing.

My .02, as a former mortgage industry professional.