I just read a great article on eHow that basically gives each step in paying off your mortgage in combination with a HELOC. I believe the article gives a general outline of how a money merge account (MMA) would work should you choose to purchase the software. As outlined in the article, there are only 2 requirements:

1. A positive cash flow – meaning that you are earning more than you are spending each month.
2. A desire to take charge of your mortgage.

I think there are some other requirements, just as there are with a money merge account, such as:

• A zero-balance Home Equity Line of Credit (HELOC) that allows you to transfer money in and out of it.

I’m just going to paraphrase and condense the version that was on eHow, but feel free to check out the full version of the article at the bottom of this post. In this example, we are assuming that we have a $200,000 mortgage and that we make $5,000/month.

1. First determine your positive cash flow – Take the combination of all your bills (mortgage, credit cards, utilities, car payments, etc.) and subtract this amount from your monthly income amount. This will be your Monthly Cash Flow – if the number is negative, this option will not work for you. The more positive cash flow you have, the more interest you will save, and the faster you will pay off your mortgage.
2. Write a check to deposit the entire amount of your paycheck to the principal balance of your mortgage. This will make your new mortgage balance $195,000, so for the entire month, interest will accrue on $195,000 rather than $200,000. Next step, paying bills.
3. Get a credit card that gives some sort of rewards if you don’t already have one. Credit cards basically allow you to “borrow” free money for up to 45 days, as long as you pay your interest off in full every month, you will not accrue any interest charges. Pay all (or as many as possible) of your bills on your credit card, and for simplicity sake, let’s say that we make a total of $2,000 in charges.
4. Next, you’ll use your home equity line of credit (HELOC) to pay off your $2,000 credit card balance and your $1,000 mortgage payment. So now, your liabilities are your mortgage $195,000 and your HELOC $3,000. A total of $198,000.
5. With your next paycheck, payoff the balance of the HELOC – with the balance of the HELOC being paid back in approximately a 1 1/2 months time, any interest that accrues will be minimal, and certainly much less than the interest that would have accrued on $200,000 vs. $195,000.
6. Continue this process repeatedly.

Read the original article on eHow.

My biggest question is this: after the HELOC balance is paid back, we still have $2,000 in positive cash flow. Should this amount be put directly back into the principal balance on your mortgage, or should you wait for your next full paycheck?

After considering this method in depth, I realized that you have to be fully ready to commit all of your extra money directly to your mortgage. Something that I think a lot of people would have a hard time with. I also wonder if the credit cards are even necessary, or if doing that just helps to further offset interest by not having that balance on your HELOC for an entire month or so.

I’d love to hear comments, if any of you have ever experimented with mortgage acceleration, money merge accounts, or offsetting your mortgage interest with a HELOC account, I’d love to hear your opinions and success/failure stories.