These comments are in response to a previously published story on mortgage merge accounts.

Comment: Thank you for bringing up the discussion on accelerated payoff HELOC mortgages in your recent column.

I want you to know that you missed the key point on merged account HELOC mortgages. I have analyzed this loan type in detail and have done all the math on virtually every possible borrower scenario. When you go through the math in detail, you find that the idea of using the float on your money to help advance the payoff of the mortgage is only a minor item. However, there is a much larger issue.

About two thirds of the mortgages in Europe and Australia are written as CAM (Combined Account Mortgages) and under certain circumstances for some borrowers they can be an exceptional tool that can automatically greatly accelerate the payoff of a borrower’s mortgage with no change in the borrower’s spending habits or any special administrative procedures required of the borrower.

The key here is that CAM mortgages will only benefit the borrower if the borrower makes significantly more money per month than they spend, but do not use their excess cash to accelerate the payoff of their existing mortgage because they may need the money down stream. With the typical mortgage they cannot retrieve any extra money they may have paid in without refinancing or selling their home. With the CAM mortgage they can.

The CAM mortgage lets them potentially accelerate the pay down of their mortgage with no change in their spending habits.

Unless the borrower meets one or both of the following criteria, a CAM mortgage will be of little value to them.

First, and most important, is that the borrower makes a few thousand more than they spend each month. If this is the case, then that extra money is automatically applied to their mortgage and has a similar effect to paying an extra thousand or two each month on their existing mortgage.

Again, the difference is that with the CAM mortgage [where CAM loans are prevalent] they can retrieve the money back if they need to where they cannot with their existing mortgage.

Second, if the borrower keeps a reasonably significant amount in their savings account, now the borrower can transfer those funds to their CAM mortgage account to accelerate the pay down on their mortgage. Again, because these loans are home equity lines of credit loans (HELOC) they can retrieve the money instantly if needed. Again, they would not be able to do this with their existing loan.

For borrowers that could afford to, the largest single reason they do not accelerate the pay down of their existing mortgage is the fact that they may need the money down stream and it is not retrievable with their existing mortgage.

It is my opinion that the problem with the CAM loans we can write today is that they are ARM mortgages. Another problem is that the rates on CAM mortgages are significantly higher than conventional mortgage rates. It is also my opinion that a second mortgage is not the way to go again because of the higher rates and the fact that they are ARM loans also.

A competitively priced, fixed-rate first CAM mortgage (not a second mortgage) can offer significant, even life changing advantages to families with no changes in their current spending habits as long as that family lives well within its means. However for families that are stretched to the limits [financially], a CAM mortgage is of little value.

These loans in themselves are not scams and do have merit. A scam would occur when an ignorant or disingenuous real estate agent or loan officer would promote these products to people who would not benefit from them.

Each individual needs to do the math to determine if CAM mortgages are good tools for their situation. The potential benefit to some borrowers can be incredible.

A: I’ve received a lot of mail on the MMAs, mostly from people who insist that they are life-changing for everyone. I’m not a PhD in Mathematics, but even I know that if you’re spending as much as you bring in, these loans won’t really do anything for you.

The truth is, if you prepay your mortgage by $1,000 to $2,000 per month, you’ll achieve great benefits and quickly reduce the amount you pay on your loan. And, if you apply the $3,500 cost of setting up the MMA on top of that, you’ll shave years of interest off your loan.

And that’s the real point, isn’t it?

Nov. 11, 2007.