Do you have to spend $3,500 to save on your mortgage?

The company just wants to help Americans pay off their houses faster and make a lot of money while helping them. So why do many people call it a scam? There are websites about it, blogs about it, and even some forums that discuss the United First Financial scam, or not.

United First Financial is the company behind Money Merge Account (MMA). United First Financial, also called UFF or U-First, is not a bank or a mortgage lender or broker. It is the company that was created specifically to support and sell a single product, the Money Merge account.

The founders, Skyler Witman and John Washenko, have backgrounds in the mortgage business. The UFF website says that millions of dollars have been spent since 2002 hiring a mathematical engineer from GE aeronautics and developing the comprehensive software for the MMA. That may be where the “fraud” accusation first surfaced. Most homeowners probably wouldn’t think of hiring an aeronautical engineer to develop algorithms to help them pay off their mortgage early.

The software is quite elegant. You don’t install it on your home computer; you don’t own it The software resides on UFF’s own computers. Mainly, it adds up the income and expenses that clients bring into the program and predicts when they should move their assets (specifically, home equity and paychecks) toward their expenses, that is, their bills. In addition, the software predicts exactly when the client’s home will be paid off and calculates final savings using the accelerated schedule you assign to them. All of that can be done in a fairly simple free spreadsheet, like OpenOffice. That’s probably the second reason why many people think it’s a scam.

At $3500, the Money Merge account seems outrageously priced, and it just might be. But considering that customers may need customer service for 10 years (the approximate time it can take to pay off a mortgage), that may not be too long. This, however, could be the main reason why it is considered a scam. That’s a lot of money, even for knowing how to pay off your house years in advance, often paying off the mortgage in full in about a third of the time. However, UFF has a solution for that too. Finance it with the equity that sits in your home and goes to waste.

Sales representatives are not only instilled with missionary zeal, but are also paid well for their services, earning up to $1,000 per $3,500 program sale. To fuel their fervor and keep overhead low, UFF’s half-dozen managers have chosen a multi-level marketing (MLM) strategy. Representatives pay a small fee to get started and only earn commissions and bonuses, not salaries. This, believe it or not, is one of the main reasons why MMA is considered a scam. People are highly suspicious of MLMs, even though they are about as legitimate as a corporate hierarchical structure with paid sales reps. Over the years, every type of business throws up a few bad apples.

The basic concept of MMA is to take equity out of your home to pay off your mortgage, thus dramatically reducing the remaining principal on your home loan. The lower the principal, the less interest you pay. Home equity lines of credit (HELOCs) typically have interest rates a couple of percentage points higher than primary mortgages. Since the HELOC is a smaller lump sum, and since the monthly income reduces it further (until it’s time to pay the bills), even the higher rate interest charges are nominal, say around $30 per month for an average daily balance of $5,000. Since the home mortgage balance is so much higher, even a low interest rate, like 6%, can make the monthly charges very high: around of $500 per month, interest only, on a balance of $100,000! And this, dear friends, IS the main reason why the Money Merge account is considered a scam! People’s understanding of compound interest is so incomplete that they can’t figure out how using money at 8% to pay money at 6% could possibly work.

While I personally believe you don’t need to spend $3,500 to use this technique (a position I’m endorsed by the United First Financial website), it works. It is not a scam. They recommend that you do your due diligence, because it’s not for everyone.