Pay off Your Mortgage Faster with a Money Merge Account

Although we were making good progress on having our mortgage paid off in 5 years by making extra payments I, wanted to pursue something further to enhance the process. We decided to take advantage of a  Money Merge Account.  There are different variations of how this can be set up, I will explain what we have done.

I want to caution you that you do not need to purchase any software to set up this process and most of the time this software will not pay down your debt as efficiently as possible and may hurt your progress in the long run.

For nearly two years we have been making mortgage prepayments when we have had excess cash in our bank accounts.  This made an incredible difference in the projected interest we would pay and the balance itself.   Our mortgage balance was approximately $239K after  22 months of prepayments.  If we did not make any prepayments our balance would be approximately $311K.  Our prepayments made a huge difference.

Every month for the past 22 months we would sit down and work out an amount we were able to prepay against the mortgage.  We had to keep track of when money was coming in and when bills had to be paid in order to prepay the right amount without going into overdraft.  Although it was very effective it was not the most efficient way to use our time.

We were able to hit a “sweet spot” when rates were increasing and refinanced our mortgage.  The penalty and legal fees were absorbed by the interest savings so we switched to National Bank’s “All in One Mortgage”.  In my opinion, this is the perfect mortgage product.  It enables you to separate the line of credit portion into different sub accounts and use each as a chequing account.  All of our income goes into one account and all of our bills come out of it.  The line of credit is re-advance-able.  When we make a mortgage payment the principle portion becomes available in the line of credit.  The beauty of this is we no longer have to plan around our income and expenses.  The money is always available.

Currently we are set up like this, $310K All In One Limit, -$189K in a fixed portion at 3.65%, -$43,726.62 in our main line of credit account which receives all of our income and pays all of our bills at 3.1%, -$832.25 in a second line of credit account to cash dam our rental property (explanation post to follow) at 3.1% and $86,441.13 available overall in the lines of credit.

The goal is to not have any money idly sitting around but have every penny we bring in offset mortgage interest.  The interest rate on the line of credit accounts will fluctuate with the Prime Rate.  As it increases we will pay down our main line of credit account so when our line of credit interest rate is above our mortgage rate at 3.65% we will no longer carry a balance.  It would be ideal  to have that account always at a $0.00 balance but with income and bills coming in and out that is not practical.  The balance will likely fluctuate $1,000 either way.

This account has allowed us to use our money to offset as much interest as possible and has simplified our financial lives.  All of our bills, utility, credit cards, taxes, phone, etc are automatically debited from our line of credit account.  Well, all except for the AMEX, they won’t do direct debit without a personalized void cheque.  We will work on that later.  We no longer have to sit down and work things out on a monthly basis.   Our finances are fully automated!

Our total debt currently is $233,558.12 which must decrease by $6312 a month in order to be debt free by July 2013  which is the goal.  Although that is a lofty goal, we are waiting for the proceeds from the sale of one rental property and may sell the other next year if the tenants do not want to stay.

The only possible down fall with this is not properly managing our spending.  We will have to monitor it and keep it in check.  That is after our tropical vacation.