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A money merge account is a special type of home equity credit line for your home.  Your paycheck is directly deposited into the account at the end of each pay period and the account determines the distribution of the money from your account.  The balance of the home equity account is paid first, with the remainder of the money deposited going towards the interest and principal of the person’s home mortgage.

The person holding the money merge account uses the home equity line to pay all of their bills and incidental purchases to ensure that they will be paid for once the paycheck is deposited into the account, but any extra money in the account is immediately applied to paying down the person’s mortgage as quickly as possible.  There are pros and cons to using a money merge account and people should understand what they are before making a decision on whether or not to open a money merge account.

The Pros

A money merge account is one of the fastest ways to pay down your mortgage and build equity in your home.  Any extra money from your paycheck is applied directly to your mortgage, effectively preventing you from spending the money on frivolous items that you probably do not need.  Because every purchase is going onto the home equity account, it encourages people to be frugal with their money and only spend on items that are really necessary to maintain their regular lifestyle.

The Cons

Money merge accounts do not do anything for a person that they could not do for themselves with some basic discipline.  If a person really wants to apply more of their money towards the interest and the principal on their home mortgage, all they have to do is write the check for their mortgage payment for the higher amount.  Money market accounts also add fees to the account for the privilege of using the account, routinely adding about $20 per payment depending on the balance of the loan.

Having the money from your paycheck automatically distributed by the money merge account can also cause problems in the event of an emergency.  If you need to send money to your parents or your children quickly to help them handle a financial emergency, it is a much greater hassle to try and obtain money from your money merge account than it is to go to a typical checking account and extract the money to send to your loved ones.  Whether or not to choose a money merge account depends on the situation of the mortgage holder, but in many cases, a money merge account is unnecessary if the person has financial discipline.