Home loans: Money Merge Accounts

Traditionally household income, monthly expenses flow in and out of a home equity line of credit. Thus here there is a merging of all accounts. There are no separate accounts for savings, credit, mortgage loans and checking. Thus all these purposes are merged into one single account namely, the HELOC. This in reality means that we are paying for groceries, electric bills, laundry etc from our equity. The entire income amount is used to pay balance of the Home Equity Credit line. Thus this is a money merger account or MMA. In order to take an MMA you should be having lot of equity. Another requirement is plans of continuing to own the house for long period of time.

Basic working of a money merger account:

• The account can be set up through the net. This might require installation of new software. Otherwise help can be taken from a lender. A lender can help set up the account for a small nominal fee.
• A home equity line of credit also has to be started simultaneously.
• The first mortgage on the home is paid down by withdrawing a large amount from the HELOC.
• The entire income is directed towards paying off the loan balance of HELOC.
• At specified time intervals large sums of money is withdrawn from the equity credit line and directed towards the first mortgage balance. This withdrawal can be programmed into the software or can be prompted by the specified bank.
• The MMA thus created can be used to pay emergency requirements of money. In other words the equity is used for emergency expenses.
• The equity credit line has a higher rate of interest when compared with first mortgage on the property. But HELOCs are easier and cheaper to maintain due to the method involved in calculating interest.
• Practically, by using an MMA it would be possible to pay off mortgages in half the specified term period.

Money merger accounts and pitfalls:

There are expenses involved in setting up an MMA. On an average it would cost around $3500.
The software or the lender prompts the borrower on payments and these have to be adhered to very strictly, otherwise the whole purpose is defeated.
There is lot of discipline and self control that needs to be exercised while dealing with these types of accounts. There should be control over spending and payments should be done in time as and when prompted. The accounts should be tracked with diligence. Only a disciplined person can make this a success.
Carelessness exercised while tracking account and making payments can lead one to fathoms of debt. This can result in credit rating damage. In extreme cases even foreclosures can come knocking. Monitoring of account activity is of supreme importance.
Thus as with everything else money merger accounts too have their pros and cons. One has to decide based on personal financial obligations, income and expenses if such an account can prove beneficial.