Money Merge Accounts: More Disadvantages Than They're Worth

There has been a new trend in the financial world in the last year or so in which consumers pay-checks are direct deposited directly onto their mortgage, and then consumers pay their monthly expenses out of what is essentially a home equity line of credit, and any money that one does not spend is extra principal paid on to their mortgage. In essence, you're forcing your self to send all of your extra money each month on your mortgage, which will cause your home to be paid off on a much quicker basis.

These products have taken a lot of different forms. With some of the accounts, you keep your existing mortgage and get a home equity line of credit, others you do a refinance and get a different type of loan. The fees vary from company to company, as does the type of loan you'll receive. None of these plans are a great idea to put in your financial life. They're certainly not scams, and some are a lot worse deals for the consumer than others.

The real problem with this account is that it makes paying off your mortgage the number one and sole priority in your financial life. All of your extra money goes onto your mortgage. You don't choose to send some of your money to a Roth IRA account, some more of it to help your aging parents, some to plan for your children's college, it just all goes to the mortgage by default. It seems to make a lot more sense to keep the money in your possession rather than send it all to the mortgage company and then borrow money on a home equity loan to pay for your expenses.

There are a number of other problems associated with money merge accounts. Often the mortgages that you will be refinanced into will have higher interest rates and variable interest rates. If you're in a good fixed rate mortgage at 5% or 6%, you'll end up paying a higher interest rate in the new mortgage that you are given.

Usually there's a pretty hefty setup fee to get into a money merge account to begin with. There are many companies that are charging consumers upwards of $3,000 to start using a money-merge account. Considering that you can accomplish the exact same thing by paying off extra principal on your mortgage each month for literally nothing, $3,000 is tantamount to highway robbery.

Money merge accounts aren't a scam, but that doesn't mean they're a great deal either. You're putting your sole focus on your mortgage, which often should be secondary to other debts and obligations and paying a high cost to do so.