What the heck is an Australian Mortgage ?

[United 1st]

Over the past couple of years a new phenomenon has hit the United States from the world Down Under. It's called an Australian Mortgage and refers to a financial strategy that's been used in the Australian and European markets for many years.

The purpose of the Australian Mortgage is to decrease the amount of interest that you pay on a mortgage while increasing the amount of principal that you pay towards the mortgage. The net effect is that you can own your home free and clear in 1/3 to 1/2 the time it would take to pay of a traditional 30 year mortgage. If used properly homeowners can save tens of thousands of dollars in interest payments to banks over the term of the mortgage.

In other words, the Australian Mortgage is a type of Mortgage Accelerator. The concept is not a new one, it's just being packaged and marketed differently and the American Citizens are now becoming aware of this mortgage planning tool.

How Does the Australian Mortgage Work?

A true Australian Mortgage requires that you refinance your traditional fixed rate or ARM mortgage into a variable rate HELOC or ALOC. (Home Equity Lines of Credit). This means that your first and only mortgage will be a variable rate Home Equity Line of Credit. The HELOC will have a higher interest rate that can change on a regular basis. This higher interest rate is offset by the way the HELOC is managed. Here's the concept:

1. A HELOC (ALOC) is acquired as a first on the subject property.

2. This HELOC will be used as your primary checking account, ATM and on-line bill pay account. In essence it replaces you current checking and savings account.

3. Your monthly income from paychecks, dividends etc is deposited directly into the HELOC which dramatically drives down the principal balance on your mortgage.

4. All your expenses, including bills, grocery shopping, entertainment etc is paid out of your mortgage. The longer the money stays in the account, the less interest that you pay on your principal balance. This uses the money that is currently sitting in your checking account, earning little or no interest, and keeps your loan balance lower.

With this concept, less of your income is going towards paying interest which leaves more money to pay down principal which pays off your home mortgage faster with no change in spending habits.

Who Offers Australian Mortgages?

Well a True Australian mortgage is only available in Australia but there are two companies that offer hybrid Australian Mortgages. These programs work the same way but use a HELOC or just a standard checking and savings account if you don’t qualify for an equity line.

The two companies that offer these programs are United 1st Financial and Sydney Financial Group. I'll be covering these products in a different blog post but of the two, United 1st Financial is by far my preferred program.

Do These Programs Work?

The answer is an emphatic YES, but only if the client is responsible with money and has positive cash flow each month. The Australian Mortgage is not for someone who has uncontrolled spending or can't currently pay their bills. Other products would be more appropriate in that situation.
What are the Risks?

There may or may not be tax ramifications so it's important to have a good tax adviser on hand that understands how these products work.
Banks can freeze the credit lines on HELOC's. While rare and unlikely, it is a possibility and a risk that you should be aware of.

As mentioned above, if you are someone who tends to overspend, using your mortgage as an ATM machine is not recommended.

Is an Australian Mortgage Right for You?

This question is not quite so easy to answer. While I am a firm believer in The Australian Mortgage and the concept of Money Merge Accounts, they are not for everyone. Other debt elimination and equity management programs may be more appropriate for your needs. It's important that the Mortgage Planner that you choose to work with asks you hard hitting questions and takes the time to understand your financial goals. Your decision will depend on where you are in life, your income, your debt load as well as the equity that you have in your home.

In addition, the decision to choose an Australian mortgage should not be made in a box. It's important that the Strategic Mortgage Planner you work with has a team of Tax Consultants, Real Estate Agents, Insurance Agents and Financial Planners who are well versed in the concept of equity management.

Your home can be used to create incredible wealth. The Australian Mortgage can play a role in that wealth creation. You need to start with a plan and educated professionals who will provide you with the education that you need to make an educated decision.

If you would like a free Money Merge Analysis or aditional information please contact me

David Frizzell
727-277-8850
United1st @ live.com

[maat55]

15 & 20 year notes will do the same thing with less risk. Most peoples cash flow isn't enough to put much of any dent in the principle. Variable rates at this point are most likely to vary upwards. Just my 2 cents.

[United 1st]

Thats what I thought

Matt, After 10 years in the mortgage business I thought the same thing too.

I thought this is nothing more than a fancy bi weekly plan or something like it.

Matt I challange you or anyone else that reads this to contack me and I will send you a couple links to watch that will completly change the way you feel.

I know its human nature to resist change or to not believe something that you don't have all the facts on but 1/3 of all homeowners in Australia are using this and 1/4 of everyone in Europe,not to mention tens of thousands in the United States.

Could millions of people really be wrong? this isn't something that might happe this is something thats already happening.

Anyone that wants to change their future, anyone that thinks this is just another gimmick or anyone in the middle contact me and I will prove it to you!!

All The Best

[b4freedom]

Sounds like someone is fishing for clients. This post should be deleted for TOS violation.

[United 1st]

Australian Mortgage

I'm not fishing for anything, just defending my post and opinion.

Its frustrating when you believe in something and you know its helping so many people and yet people that really know nothing about it dismiss it or say things that are not true.

All I'm asking if for people to do some research or have some facts before they post something on a topic they really don't know anything about.

NO FISHING!!!!!

[LivingAlmostLarge]

I've done it before where we've had a HELOC for our first mortgage. It's a great way to pay off the mortgage quickly. When we were doing that it was less than 3% interest.

It's really only worth it when the interest rate is low.

[maat55]

In countries like Australia, New Zealand, the United Kingdom, etc., many homes are financed with open-ended mortgages. These mortgages operate on the same kind of rules governing equity lines of credit. For example, interest charges for the month are based on the average daily balance instead of once monthly, and excess cash can be put into, or withdrawn out of them repeatedly, so long as the maximum balance does not exceed the loan’s limit.

With this second kind of mortgage financing a home, consumers are able to utilize the loan much like a checking account.

EXAMPLE: Mr. and Mrs. Smith have financed their $200,000.00 home with an Australian-type mortgage (an open-ended line of credit). Instead of depositing their paychecks into a checking account, they deposit their paychecks into their mortgage and pay their bills from there. Even if their paycheck money is completely spent out of the mortgage on bills, the fact that it was there for a while effectively lowers the average daily balance of debt for the month, and lowers the total amount of interest due.

If the Smiths spend less than their entire paychecks, the money remaining in the loan continues to lower the average daily balance resulting in additional interest savings. The more discretionary income left in the mortgage, the faster the loan is paid down.

Assuming that the Smiths are used to spending less than they make, this accelerated pay down of their mortgage should not hinder their spending or require additional earnings. They are accelerating the pay down of their loan without any change to their current lifestyle.

Most Americans Have Traditional Mortgages.

While this type of arrangement may work well in other parts of the world, many Americans have already financed their homes with traditional closed-end mortgages. In order to meet the needs of the majority, companies began developing products that used a home equity line of credit to facilitate acceleration.

The Most Common Solution.

By adding a home equity line of credit, companies were able to design products that acted much like the Austrailian mortgage. By transferring partial debt out of the closed-end mortgage and onto the line of credit, customers could treat their Home Equity Line of Credit (HELOC) in much the same way they would an Ausrailian Mortgage.

Most of these programs involve software that advises the customer about how much to transfer onto the line of credit and when.

Do They Really Work?

At Value Financial our guiding criteria is in our name…value. Every product we look at is held up to one universal standard; Does the product create more value for the customer than it costs? It may sound simple, but there it is.

In the case of most mortgage acceleration products we have inspected, the answer to that value question is “No.” Here’s why. For a financial product to be worth buying, it’s got to do something for the customer that the customer could not reasonably be expected to accomplish on their own.

EXAMPLE: United First Financial

This is one of the largest and best-respected companies in the industry. Let’s take a look at an example from the Money Merge Account System video tour (located on their website as of 5-25-2008). The video talks about a fictional couple named "John and Rebbecca Jones."

Here are their vital statistics:

Mortgage of: $200,000.00
Fixed Rate of: 6.0%
Term: 30 years

After Tax Income: $5,000.00
Expenses: $4,000.00
Discretionary Income: $1,000.00

The video explains how John and Rebbecca can use a Line of Credit to pay money into their fixed rate mortgage, deposit their paychecks into the line of credit and buy down the average daily balance. Since they only spend $4,000.00 of the total 5,000.00 deposited, $1,000.00 of their paychecks remains in the line of credit, paying it off completely in a few months time.

At that point, highly sophisticated software advises John and Rebbecca to make another payment into the fixed-rate mortgage from the credit line, and the process starts all over again.

The MMA results: John and Rebbecca can pay off their mortgage in 10.417 years, saving thousands of dollars in interest.

Sounds terrific right? Well, let’s think about this. What’s really paying down John and Rebbecca’s mortgage so quickly? Is it the special software? Is it the manipulation of average daily balances in their line of credit? Is it magic? Nope. None of the above.

If you look closely you’ll notice that the $1,000.00 of discretionary income is making its way into the credit line, and eventually into the mortgage itself. This system is using that $1,000.00…all of it…to pay down the fixed rate loan.

Let’s simplify the formula. Get out your calculators. What would happen if John and Rebbecca didn’t buy the special software (currently priced at $3,500.00)? What if they didn’t open or use an additional line of credit? What if they simply threw the extra $1,000.00 bucks into their 200K mortgage each month, all by themselves?

I know there are those of you out there saying, “But they would never do that on their own.” Remember, I’m not shopping for systems that provide discipline, or structure, I’m simply doing a value calculation. If a person needs discipline, they can probably get it for less than $3,500.00 The Ufirst system is using up all of that discretionary income to produce it’s result, so to compare apples to apples we have to see what would happen if John and Rebbecca used the same money without the UFirst system, over the same period of time.

So John and Rebbecca forego all the sophisticated methods and simply throw an extra $1,000.00 per month into their existing mortgage. No software. No line of credit. No special system. No brainer. What’s the outcome?

The self-run results: By following this simple strategy (it doesn’t get simpler), John and Rebbecca will pay off their mortgage in 10.2 years.

Remember the Ufirst software system paid off the mortgage in 10.4 years, at a cost of $3,500.00.

Let’s put them side by side

Side by side comparison: Ufirst MMA: 10.4 year pay off.
All alone: 10.2 year pay off.

You might be wondering why the UFirst system actually takes longer. That's because the $3,500.00 cost of the system has been included in the results.

Unless a customer is buying this kind of system to help with self-discipline or to provide some kind of structure, we generally would not recommend it in terms of actual value. It does not create more value for our customers in terms of dollars and cents, than it costs.

There's no need to single out Ufirst in this example. Companies that use similar systems to accelerate mortgage payoffs will have similar results. In fact, most of the "accelerators" in the marketplace will be within months of each other when it comes to paying off John and Rebecca's mortgage, and will actually pay off the mortgage slower than they could do themselves.

[United 1st]

I think you over simplfy it saying if the same homeowner from the video puts the same $1000 per month towards the equity they will have the same results but lets assume your right.

Here is the problem, People won't do it! plain and simple. Nobody does it and you know it. Have you ever sent a penny extra? has any of your friends, family or anyone else you know ever paid a dime extra on your mortgage? I am a mortgage broker and it the past several years have been amazed in the number of people doing interest only loans which will take um... lets see how long to pay off....um, oh thats right never. Because people never pay more than the interest only payment. Another reason people don't ever pay more is most people live either pay check to pay check or with limited savings. so for them to send $100 or $1000 more towards their mortgage principle makes them nervous because they are always thinking what if the car breaks, what if the water heater goes out, what if what if. With a Money Merge account if something happenes after you sent the money you still have access to money in case you need it.

Bottom Line - Your disputing this just for fun or to try and discredit someone elses opinion.

With the thousands of blogs, videos, news articles and every other information source on the internet you might be able to find nay sayers talking bad about the Money Merge system. But the Plain Truth and Fact is you will never find anyone that is using the Money Merge System or any system like it saying something bad about it... Why? Because it works!!!

[United 1st]

Do They Really Work?

At Value Financial our guiding criteria is in our name…value. Every product we look at is held up to one universal standard; Does the product create more value for the customer than it costs? It may sound simple, but there it is.

Here is a couple of people that disagree with Value Financial's opinion of the product:

Recent Money Merge Endorsements:
Glenn Beck – CNN NEWS
Mark Hansen – Chicken Soup for the Soul Author
NBC NEWS – Saving you Money Team
True Wealth Magazine
Ernst and Young Award - 2008
Real Estate Magazine - 2008 Editor Choice Award
Mortgage Planner Magazine
G Edward Griffin – Freedom Force International
Member of Better Business Bureau
Thousands of Clients, Mortgage Professionals, Realtors, Financial Professionals Nationwide

[maat55]

I chose a 20 year mortgage to payoff early. Many here recommend 30 years and invest the difference. You presented a axcelerator program, of which comes with a fee. I'm showing another for free, that works just as well. I also believe that you are pushing this as if you have something to gain. I could be wrong, but IMO.

[disneysteve]

Here is the problem, People won't do it! plain and simple. Nobody does it and you know it. Have you ever sent a penny extra? has any of your friends, family or anyone else you know ever paid a dime extra on your mortgage?

Clearly, you are new to this site. There are loads of people here who prepay their mortgages and many who have totally paid them off many years early. I expect to have mine paid off well ahead of schedule while also building a nice 7-figure retirement portfolio.

If you are looking for customers, which it certainly sounds like you are, I think you've come to the wrong place.

[United 1st]

Value Financial our guiding criteria is in our name…value

You know I get some interesting resuts if I go to rip off report dot com and put in "Value Financial"

And then I put in United 1st Financial - the maker of the money merge account and hmmm no complaints???? Wow thats weird.

gosh you never know who you can trust....

[United 1st]

disneysteve, don't you think as a Family Practice Physician your income is maybe a little more than the average American?

I know from my experience doing loans for Physicians they typically have the extra income to make extra principle paments, and congratulations for doing so!!!!

[gamecock43]

I would think that for some people this Australian mortgage might ENCOURAGE them to save money. Thats how I would look at it. I might altogether stop spending any money unnecessarily just to see the balance come down faster. And I might get obsessive aboutchecking the balance several times a day.
However, other people might be encouraged to go on a wild shopping spree if they see this kind of balance in their bank account.

[disneysteve]

disneysteve, don't you think as a Family Practice Physician your income is maybe a little more than the average American?

I know from my experience doing loans for Physicians they typically have the extra income to make extra principle paments, and congratulations for doing so!!!!

I can assure you that my income has nothing at all to do with it. I can send you links to loads of articles about doctors with the exact same financial troubles as everyone else. A higher income means nothing if you don't manage it responsibly. Doctors, and other higher wage earners, get into just as much trouble, if not more, with credit card debt, home foreclosures, devastating divorce settlements, lousy investments, etc.

The reason I have "extra" money to make extra principal payments is because we live well below our means. We drive old cars. We shop at thrift shops. We clip coupons and buy store brands. We cook meals from scratch. We hang out places like this to get tips on trimming our expenses.

Saving money is a mindset and a lifestyle. Almost anyone can do it regardless of their income if they make saving a priority in their lives.