| One of the most controversial subjects to hit the | | | | these mortgage acceleration software programs work |
| information highway in the last few years is the | | | | is the volume of protests from those who work on the |
| development of equity accelerator programs or the | | | | other side of the balance sheet. |
| use of software to facilitate an early mortgage payoff. | | | | If you look at how these programs work, it becomes |
| It seems that everyone has an opinion about these | | | | clear that it's not voodoo, magic, or part of the financial |
| new mortgage principal reduction programs as to | | | | bail out plan. It's just our money paying off our debt. |
| whether they are a mathematically legitimate and | | | | Could we accomplish the same thing ourselves? |
| viable method of accelerating the payoff of mortgage | | | | Possibly so, however, most of us don't. |
| and other debt. | | | | The concept of mortgage acceleration is only part |
| The proponents of the mortgage accelerator | | | | mathematical. The balance of the concept is more |
| programs claim that they will enable homeowners to | | | | behavioral in nature. |
| pay off their existing mortgage in a fraction of the | | | | We all know that, in order to lose weight, we need to |
| normal time by utilizing mathematical formulas or | | | | stop eating so much and exercise more. Yet there is a |
| algorithms which direct cash flow and discretionary | | | | billion dollar weight loss industry that is thriving despite |
| income to offset the principle and interest associated | | | | this physiological fact. |
| with conventional mortgage amortization. | | | | Perhaps the key to mortgage acceleration software |
| Yet the math they are able to demonstrate can be | | | | programs is that they show us how to make better |
| found in a common mortgage amortization calculator. | | | | financial decisions. Take the concept of virtual interest, |
| The opponents contend these programs do nothing | | | | for example. If we have a mortgage, we pay virtual |
| that one can't accomplish on their own and that the | | | | interest on everything that we buy. The $5 we spent |
| cost is, therefore, unjustified. | | | | at Starbucks this morning could have been sent to pay |
| The most critical commentary seems to come from | | | | down the principle on our mortgage. Rather, we chose |
| individuals in the mortgage industry. Are they speaking | | | | not to do that and so will pay virtual interest on that $5 |
| from a sense of altruism or is their vehemently | | | | for the next 20 or 30 years. To our balance sheet, |
| negative position an inadvertent testament to the | | | | there is no difference between virtual and actual |
| effectiveness of mortgage acceleration analysis | | | | interest. |
| software? | | | | Had we known that the true cost of that cup of |
| Still more albeit less aggressive criticism comes from | | | | coffee was $30; would we still have bought it? These |
| the professional ranks of financial advisors. It is more | | | | programs put our normal cash flow into a format that |
| of a conceptual argument that one should direct their | | | | demonstrates the effect of our discretionary spending |
| financial resources into investment strategies rather | | | | and forces us to make better buying decisions. They |
| than toward mortgage reduction strategies. | | | | reinforce the good decisions by giving us positive, goal |
| If you are able to earn an 8% return, it would make | | | | oriented feedback. They negatively reinforce the bad |
| mathematical sense to grow that account rather than | | | | decisions by visibly adding time to our sentence of |
| pay off debt at 6%, but does the arbitrage argument | | | | debt. |
| assume a higher rate of return on the investment than | | | | Had we all been given a proper financial education, |
| were likely to see these days? Also, is arbitrage, the | | | | then we wouldn't need mortgage reduction programs |
| process of investing borrowed money, something that | | | | and the points made on either side of the issue would |
| the average American family should feel comfortable | | | | be moot. Instead, we were taught chemistry and |
| in doing in a volatile market? | | | | algebra and so, the controversy will continue. |
| So, all that one may need in the way of validation that | | | | |