The Shred Method, who is doing it?

Question

Just recently heard about the shred method from someone who is doing it, is anyone else doing it?? What are your thoughts?

Mike Dymski · Answer

For people who have low mortgage rates, it's better to put excess cash in a money market, savings account, CD, or treasury note and earn 5% rather than to pay down a mortgage that has a rate that less than 5%.

Steve Vaughan · Answer

After googling it, I see the goal is to pay off your house in 3-6 years.I've paid off mine and several rentals.  My method was to punch each mortgage in the face 1 by 1 with extra principal payments.  What's the secret with this 'method ' and what's the cost / commitment / catch?

Allan C. · Answer

@Bobby Paquette it sounds like a good system for those who are not financially disciplined or want to reduce debt burden, but this will likely not be a philosophy that I’ll subscribe to.

I’m a firm believer of opportunity cost and time value of money, which means I’ll always max leverage on asset backed loans. It doesn’t mean that I’m living on the edge with no reserves - on contrary I carry higher reserves than most.

But I’ll be opportunistic and maximize returns on any equity as opposed to paying off fixed-rate debts. You can always pay off your full debt anytime in the future, so why not pursue 2x or 3x yield on your incremental equity instead of paying down principal.

Tim Delaney · Answer

@Bobby Paquette personal finance is “personal” and everyone needs to make decisions that they can comfortably live with. Personally I am in no rush to pay down any of my asset backed loans, particularly my primary residence at 3%. That said I am only 60ish% levered on my primary because that is the safety I chose when I refinanced.

But even the loans on investment properties that I have 80% LTV at loans between 4 and 6.1% I am also in no rush to pay down. Nor would I on a 7-8% loan if I am cash flowing. I believe in the time value of money - whether that means reinvesting it in something that gives me a higher return or taking an extra vacation to spend more quality time with my children while they are young.

Bobby Paquette · Answer

I wouldn't say not financially disciplined, I would say looking at debt differently, and reducing risk. Also, depends on how much risk someone wants to take on.

Bobby Paquette · Answer

The guy who created the "Method" which is software that spits out where to put the same amount of money you send out every month but it tells you where to put it to maxmize the savings. It combines all debt, not just mortgages*

Also, I have not done it, I just know another Agent/Investor who is doing it right now, and loves it.

Bobby Paquette · Answer

Its basically like you did except you pay less interest over the life of the loan. The amount you pay on interest is directed by the principle amount, and if you put say $50k towards priciple and pay a little interest on that, its significally cheaper than paying interest on a few hundred thousand.

The Shred Method, who is doing it?

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