Mortgage Rate News

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I received this question from a reader recently, with regard to a software program that purports to help you pay off your mortgage faster:

Recently, I have learned about programs called money merge accounts? Do these programs really help you pay off your mortgage early? How do they work?

Money merge accounts are interesting programs that work with the help of software. They can, indeed, help you pay off your mortgage early. But they are costly. Cash Money Life offers a rather succinct and useful description of how these programs work:

• Buy mortgage software accelerator program (often several thousand dollars)
• Open a HELOC (a loan secured against your home, often at an adjustable rate, and sometimes through the sponsoring company or its affiliates)
• Borrow against your HELOC to pay mortgage
• Deposit your paychecks into the HELOC
• Pay your bills out of the HELOC
• Remaining funds go toward mortgage and principle

The program seems like a good idea, and it can be in some cases. However, it requires you to put your debt repayment priorities and your savings priorities on hold while you concentrate on your mortgage loan. If you don’t have any debt, and are satisfied with the amount of money that is going into your retirement account (this would be under “bills” that you pay out of your HELOC), then it might work for you.

However, to be effective, you have to be willing to follow the program exactly, and you have to have a huge surplus at the end of each month that can be used to pay down your mortgage. And, of course, there is the cost that is involved in buying the program.

Paying down your mortgage on your own

In fact, you can accomplish a faster pay off of your mortgage on your own. If you make a plan to pay your mortgage bi-weekly, or to make an extra payment on your principal each month, and budget for it, you can pay off your mortgage quicker and receive the benefits of lower interest costs.

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New credit card rules have been passed by the Senate. They still have to go to the House, before heading to President Obama’s desk, but they are well on their way. It appears that this is the year for credit card reform. The rules passed by the Senate go beyond what was proposed by the Federal Reserve last December. Here are some of the basics of the new credit card rules:

• Gift cards must have a 5-year life.
• Bills must be sent 21 days prior to the due date.
• Changes to terms must be sent to consumers 45 days in advance.
• No retroactive changing of the credit card interest rate unless the account is 60 days delinquent.
• Over the limit fees can no longer be charged.

These binding rules would be a definite change from the non-binding Credit Cardholders’ Bill of Rights, which no major credit card issuers observe. Consumers have been seeing increasing fees, and reductions to their lines of credit. It is also likely that credit card issuers will be on the war path until this bill takes effect in 9 months (assuming it passes). Those with poor to fair credit (and even some with good credit) can probably expect to see their interest rates and fees go up now, as credit card companies scramble to take all they can get.

Also interesting — those who are under 21 will have a more difficult time getting credit cards. Indeed, a co-signer may be necessary in some case. These efforts at making credit more consumer friendly may actually make less credit less desirable to consumers. But that’s not necessarily a bad thing. Forcing credit card reform may encourage the rest of us to look at card policies and our financial practices. If credit becomes less desirable, then consumers are more likely to practice solid financial planning that will help them better prepare for the future. This may be just thing to wean us off our dependence on debt.

There are a number of proposals out there for stimulating the economy that center on regular folks. Leaving aside, for the moment, that there probably isn’t money left to spend much on regular folks (a lot has been spent already on banks), it is tempting to decide to provide a stimulus for individuals who are having a hard time. Help them, and they can in turn help the banks. Doing things the other way — helping banks so that the effects will “trickle down” — hasn’t been working very well.

Student loan economic stimulus

One of the plans floating around out there is forgiving student loans in order to stimulate the economy. Robert Applebaum is the creator of a Facebook group calling for the forgiveness of student loans:

In a way, it makes sense. How many of us graduated from school with student loan debt? What would we be able to buy if we didn’t have it? How much more would we be able to borrow if we weren’t making student loan payments? The stated goals of our leaders, since the issue of financial crisis reared its head, have all been connected with getting us to spend more money. So why not make it possible?

Student loan forgiveness would be costly, though. The government would have to buy all the loans from the folks it subsidizes to offer low cost student loans, and then forgive the loans. It could work, though, as part of the effort to cut out the “middle man” when it comes to student loans. If the government began making the loans directly to students, rather than paying others to do so, the government could make money on it. And it might go toward reducing the horrendous deficit we’re in.

At any rate, I think there are a number of ideas out there related to stimulating individuals — and I think that maybe the government should consider that as an alternative to throwing bad money after bad with all of these efforts to prop up failing businesses and banks.

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