Law Offices of RL Johnson’s Blog

CLIENT INQUIRY RECEIVED – Thursday, February 07, 2008 7:17 AM

They gave us this info through the church we are going to, think it sounds shady or no? They’re really trying to press people to donate money when they do this, plus, the software costs $3500. They’re telling us that we can have our house payed off in 4 yrs. Sounds too good to be true!

ST

ATTORNEY RL JOHNSON’S REPLY – Thursday, February 07, 2008 10:47 AM

My suggestion is this: If you have $3,500 to invest: (1) payoff your high interest credit cards, (2) buy some cheap term insurance, and (3) start planning for the following: (a) disability insurance for Rob (which he can probably get along with term-life insurance cheaper through a trade or business association); (b) start a retirement account(s); and, (c) open 529 (i.e., college savings) plans for the kids. Oh, give a little to the charity of your choice and claim the donation on your income taxes.

Most importantly, DO NOT waste your time money and/or energy with MMA. Here’s seven (7) reasons:

§ MMA is built on the idea that having a mortgage is a bad thing: This is simple not true! Here’s a link that explains it better than I can. http://www.ricedelman.com/cs/education/article?articleId=232 . In fact, I highly recommend this website for all of your financial planning questions.

§ You must have equity in your primary residence and that home equity line of credit (“HELOC”) that you’re required to take out must be a “revolving account.”

§ MMA completely ignores that fact that whatever amount you apply to your principal mortgage payment is ineligible for annual tax deductions (note that tax the deduction on mortgage interest payments is about 35 cents on the dollar!)

§ MMA ignores the importance of paying down high interest credit cards (some 18% or more). Compare 18% to the 5 – 8% you pay on your mortgage.

§ MMA won’t tell you that paying off your house sooner won’t increase its value.

§ MMA ignores the fact that if your (“HELOC”) is adjustable you could easily start loosing money if you don’t have a lot of disposable income each month or you spend more than you make.

§ MMA won’t tell you that a borrower with financial discipline who wanted to pay down principal could do so on her own, without a fancy product that charges a premium rate!!! Just make 2-3 extra mortgage payments each year and direct that they be applied to the principal. No big deal! Why do you need their software?!?

I trust that this message finds you well.

Take care,
/s/Rod