All Forum Posts by: Joshua S.
Joshua S. has started 2 posts and replied 293 times.
Originally posted by @Matthew Olszak:
Originally posted by @Joshua S.:
Originally posted by @Matthew Olszak:
Originally posted by @Joshua S.:
Originally posted by @Matthew Olszak:
@Joshua S. I pay as little as possible as late as possible (prior to any late fees being added) every month as my rate is 3.625% and nothing will beat that or be worth my effort/time at doing so. Any savings will be negligible compared to the return I could make on my cash investing it in other properties or elsewhere versus rapidly paying off my low-interest loan.
So, you're content to stay in debt and pay over 60% total interest on your loan over 30 years. That's great, good for you. Some other people like to get out of debt earlier and are okay with the guaranteed (lower) rate that early mortgage payoff provides. Some of us use a HELOC to make it a little easier for us or some of us just pay early in some other way ie. extra monthly principal or biweekly payments. It's a crazy world, right, where there are so many cars to choose from but they all get you there? To each his own, huh? Have a good one.
Absolutely I'm content to do so. Debt is the bank's risk, not mine. In the case that the market collapses to a substantial level never seen before, the bank can't eat me alive or throw me in jail, they'll simply foreclose the property; and because I contribute minimally, my loss is next to nothing. If I can take my on-hand cash and make 16% on it year-over-year, why in the world would I want to tie it up paying down a 3.625% loan when I'll just have to pull a 4.25% loan out afterward to put that money (equity) to use? And don't forget, your HELOC will add to your DTI and limit your ability to qualify for any further loans (or even credit cards), as well as the risk that it will be reduced or called-due, neither of which is a risk cash in my bank account holds.
But again, I try not to get too deep into these arguments. I put my money to work, you hold on to dead-equity as security, to each their own.
Ignorance is bliss.
Wow, 16%, that's great! I'm actually not spending any money to get my mortgage interest savings, because the money was eventually going there, anyway, so how do you calculate a return on free money, you suppose? I'm putting in zero and getting out about $100,000 in savings, what is the ROI on that, you think? 17%-18%?
I feel like I'm arguing why 1+1=2 here. Spin it how you want, attach whatever terms you want (like "tool"), the math remains the same and that's what I (and frankly anyone with a basic education) follow. Good luck.
There's no spin needed, it's math just like you said. You beat your 3% loan by getting 16% and I get around 10,000,000% investing next to nothing and getting $100,000. We're all winners, I'm proud of everyone here, especially you. But you're right that ignorance is bliss, so maybe there's some way you can go back to not knowing mortgage interest savings is free money with a massive return. Just work on forgetting it and you'll probably be happy enough. Later and good luck to you, too!
I put in one dollar to get an idea of what it would be in actual numbers. Just under 10 million percent? That's pretty good. I think your 16% is really awesome, though, keep up the good work, sport.
Originally posted by @Matthew Olszak:
Originally posted by @Joshua S.:
Originally posted by @Matthew Olszak:
@Joshua S. I pay as little as possible as late as possible (prior to any late fees being added) every month as my rate is 3.625% and nothing will beat that or be worth my effort/time at doing so. Any savings will be negligible compared to the return I could make on my cash investing it in other properties or elsewhere versus rapidly paying off my low-interest loan.
So, you're content to stay in debt and pay over 60% total interest on your loan over 30 years. That's great, good for you. Some other people like to get out of debt earlier and are okay with the guaranteed (lower) rate that early mortgage payoff provides. Some of us use a HELOC to make it a little easier for us or some of us just pay early in some other way ie. extra monthly principal or biweekly payments. It's a crazy world, right, where there are so many cars to choose from but they all get you there? To each his own, huh? Have a good one.
Absolutely I'm content to do so. Debt is the bank's risk, not mine. In the case that the market collapses to a substantial level never seen before, the bank can't eat me alive or throw me in jail, they'll simply foreclose the property; and because I contribute minimally, my loss is next to nothing. If I can take my on-hand cash and make 16% on it year-over-year, why in the world would I want to tie it up paying down a 3.625% loan when I'll just have to pull a 4.25% loan out afterward to put that money (equity) to use? And don't forget, your HELOC will add to your DTI and limit your ability to qualify for any further loans (or even credit cards), as well as the risk that it will be reduced or called-due, neither of which is a risk cash in my bank account holds.
But again, I try not to get too deep into these arguments. I put my money to work, you hold on to dead-equity as security, to each their own.
Ignorance is bliss.
Wow, 16%, that's great! I'm actually not spending any money to get my mortgage interest savings, because the money was eventually going there, anyway, so how do you calculate a return on free money, you suppose? I'm putting in zero and getting out about $100,000 in savings, what is the ROI on that, you think? 17%-18%?
This online calculator actually says it's infinity, but that can't be right, hold on.
Originally posted by @Matthew Olszak:
@Joshua S. I pay as little as possible as late as possible (prior to any late fees being added) every month as my rate is 3.625% and nothing will beat that or be worth my effort/time at doing so. Any savings will be negligible compared to the return I could make on my cash investing it in other properties or elsewhere versus rapidly paying off my low-interest loan.
So, you're content to stay in debt and pay over 60% total interest on your loan over 30 years. That's great, good for you. Some other people like to get out of debt earlier and are okay with the guaranteed (lower) rate that early mortgage payoff provides. Some of us use a HELOC to make it a little easier for us or some of us just pay early in some other way ie. extra monthly principal or biweekly payments. It's a crazy world, right, where there are so many cars to choose from but they all get you there? To each his own, huh? Have a good one.
Originally posted by @Matthew Olszak:
The reoccurring theme in these threads is that the HELOC saves a bunch of money. Then someone (like @Chris May) comes in and proves it doesn't via the hard #'s and calculations. Then the conversation shifts that this method is just a "tool". No, its not. A tool is like when you are making dough, and you use your kitchenaid mixer attachment to kneed it, whereas what this "method" proposes is that using your left hand to kneed the dough is more effective than using your right hand. Its one-in-the-same. Or worse. Or at best, slightly better but in no way worth the effort.
To the proponents of this "method" - we aren't trying to convince you. You are just like the sovereign citizen movement who believes they are smarter than all and have "discovered" a secret loophole to not pay taxes. We are simply presenting the MATHEMATICAL FACTS - IE something that is NOT a matter of opinion, to hopefully dis-sway the lay-person reading these posts and actually considering making your same financial errors.
That's an interesting take on things, Matthew. What technique do you use to save on mortgage interest?
Originally posted by @Chris May:
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Brian Cardwell:
Nope not saying that at all. The results would be very similar. What I am saying is that I still have easy access to my extra money if I need it for something.
Next question: if you put the $1000 towards your mortgage instead of your HELOC, and kept a zero balance on your HELOC, would you not have access to the same amount of money?
Chris, everyone has acknowledged that that's true, but you're the math guy, so answer this for us. I see other benefits, as I've said, but I'm legitimately curious how it works out mathematically, too, and I'm always wrong like you have said.
In the example Brian gave where throughout each month his balance fluctuated on HELOC and he was paying (5%, I think) on say a $4000 average daily balance, what was he paying on HELOC interest vs 4% on $10,000 if he left it on the mortgage? I get like $16 on the $4000 and $33 on the $10,000, but I'm sure you'll say I'm not allowing for the spacetime continuum or whatever, so how does it work out?
I think I understand the question.
In month one, the mortgage is 200k. Two scenarios:
- Put 2k towards mortgage on day 1. Balance is 198k for the month. Total interest accrued is 198000 * .04/12 = $660
- Pay mortgage with $10k from HELOC on day 1. Pay $5k on HELOC on day one with paycheck. Gradually work up to $8k at month end. Average daily balance = $6,500 ([5000 + 8000] / 2). Mortgage = 190k. Mortgage interest = $633.33. HELOC interest = 6,500 * .05 / 12 = $27.08. Total interest = $660.41
Close. In your strategy you are saving money all month and then paying the $2000 in month two. That's part of the point you have continually ignored. When Brian and I paid the $10,000 we didn't have to save it or wait on it in some way. So, the mortgage balance for number one is $200,000 and the interest is $666.
Now what does month 2 look like?
I disagree with your premise, but I'll play along. There's no reason you couldn't pay 2k towards the mortgage at the start of month 1. I would hope nobody's monthly budget is that unpredictable. But anyways...
Month 2
- Mortgage starting balance: 197,711.84 (includes principal payment with regular monthly payment in month 1). Interest: $659.04.
- Put 5k towards HELOC on day 1. Draw back up to 6k. ADB = (3,027.08 + 6027.08) / 2 = 4527.08. HELOC interest = $18.86. Mortgage interest on $189,726.24: $632.42. Total interest: $651.10.
We've discussed this before. The formula for how much you save is entirely dependent on the rate spread and the amount to which you can game the ADB formula. So your interest savings is $642 over the 7 years it takes you to pay off the mortgage, but you still have a HELOC balance once your mortgage is paid off that continues accruing interest for 1-5 months that eats into that savings.
Doing imprecise math, you'd pay another $50-100 on the remaining HELOC balance after mortgage is paid off, which takes you down to ~$600 savings. You saved $7 per month. An extra beer a month. The two HELOCs I've had came with a $150 per year fee. That would put you in the hole.
A lot of effort for chump change. And a far cry from the tens to hundreds of thousands of dollars I always see thrown around in discussions. That's actually the real claim I take issue with--"I move xx years ahead on the amortization table and save a bazillion dollars!". This is also one of the more extreme real world examples there will be (2k per month principal payment with $1500 ADB vs ending balance spread).
PS I'd need to model out the whole life of the loan to get the exact difference between 1 & 2, but the numbers above are very very close.
See, this is confusing because you're saying your savings are over 7 years, but whenever I've tried to say that you save X amount over the 10 years you are paying the loan, you specifically refute it by saying that the loan term is 30 years and you can't get a proper comparison unless you use that time frame. So aren't you saving $7 x 360 = $2520?
The tens to hundreds of thousands of dollars you see thrown around in discussions are vs paying on the normal schedule. We've conceded over and over that if a person just has X amount of dollars lying around at the end of every month and the discipline to do it, then simply paying additional principal out of your checking account is analogous to the HELOC strategy, but I disagree with THAT premise and have been playing along with it forever. I disagree with it, because the fact is, most people DON'T DO WHAT YOU'RE SAYING. In fact, I'd be willing to bet that not a single person on this thread or anyone you know for that matter empties their checking account onto their mortgage every month. So, you keep saying that Brian and I are hacks who are not saving thousands of dollars, blah blah blah, but you're the one who's not saving thousands.
It's like I'm rolling up in a Honda that I fixed up from nothing and you're giving me a hard time because you could TOTALLY ANNIHILATE my PATHETIC RIDE and fix up a LAMBORGHINI if you REALLY WANTED TO................................ but you don't. So at the end of the day I'm in my Honda and you're on your bike yet I'm still super pathetic because you COULD do better than I am... if you really wanted to. Do you get what I'm saying? You're a flaming naysayer that isn't doing anything about his mortgage interest. You moved the goalposts to this hypothetical spot that is comfortable for you to argue from, but you're not actually doing it. I am. I went along with that premise, because you're actually right. IF a person wanted to dump their checking account onto their mortgage every month it would be roughly the same as what I'm doing. Great. I totally concede that. Now let's step out of la la land into the real world where I'm saving thousands on my mortgage and you have money gathering dust in your checking account and you can concede that.
Bruh, slow down. When I talk about having to compare against the full 30 year life, I'm talking about your HELOC/early payoff method vs not pre-paying principal at all, and specifically when to recognize the bazillions in savings. You can't recognize it all up front and say you saved a bazillion dollars on day one. I feel like we keep doing this... you're presenting like 10 different scenarios in the same breath, and then missing the distinction between each one... and then thinking you're catching me in some gotcha when you're actually just missing the point I'm making.
When comparing two payoff strategies that end on the same date, you compare the savings side by side, over the life of those loans, not the full 360 months.
As for the rest about Hondas and whatnot, I have no idea what point you're making. I'm doing just fine with my real estate investments though because I don't chase $7 and instead spend my time doing the real financial analysis to use leverage/debt to maximum advantage. But thanks. The more people who waste their time with this stuff, the less competition I have.
I think you're a very intelligent person who is also weak minded, because you know exactly what I'm saying, but don't have the balls to concede the point.
I conceded that a person can save thousands on their mortgage without a HELOC, because I'm a man and I'm fine with being wrong sometimes. You could be a man and concede that you're fighting for a very hypothetical scenario and NOT saving thousands on your mortgage with or without a HELOC, but you won't because you're weak and afraid of what everyone will think of you for conceding a simple point. A point that everyone already knows is true. Is that clear enough?
Sigh. Obviously paying your mortgage early saves interest, I've never once denied that. I honestly have no idea what point you think I'm unwilling to concede.
You know exactly what I'm saying because you're the smartest one in the room. You're an armchair quarterback, buddy. You're bashing us up and down because of our "second rate" way of saving thousands and you aren't doing it at all. You would've murdered us all on the NFL field..... if you had ever made it past the pee-wee league. Have a good one, Uncle Rico. :)
https://www.youtube.com/watch?v=xL-VX3WbA9U
Originally posted by @Chris May:
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Brian Cardwell:
Nope not saying that at all. The results would be very similar. What I am saying is that I still have easy access to my extra money if I need it for something.
Next question: if you put the $1000 towards your mortgage instead of your HELOC, and kept a zero balance on your HELOC, would you not have access to the same amount of money?
Chris, everyone has acknowledged that that's true, but you're the math guy, so answer this for us. I see other benefits, as I've said, but I'm legitimately curious how it works out mathematically, too, and I'm always wrong like you have said.
In the example Brian gave where throughout each month his balance fluctuated on HELOC and he was paying (5%, I think) on say a $4000 average daily balance, what was he paying on HELOC interest vs 4% on $10,000 if he left it on the mortgage? I get like $16 on the $4000 and $33 on the $10,000, but I'm sure you'll say I'm not allowing for the spacetime continuum or whatever, so how does it work out?
I think I understand the question.
In month one, the mortgage is 200k. Two scenarios:
- Put 2k towards mortgage on day 1. Balance is 198k for the month. Total interest accrued is 198000 * .04/12 = $660
- Pay mortgage with $10k from HELOC on day 1. Pay $5k on HELOC on day one with paycheck. Gradually work up to $8k at month end. Average daily balance = $6,500 ([5000 + 8000] / 2). Mortgage = 190k. Mortgage interest = $633.33. HELOC interest = 6,500 * .05 / 12 = $27.08. Total interest = $660.41
Close. In your strategy you are saving money all month and then paying the $2000 in month two. That's part of the point you have continually ignored. When Brian and I paid the $10,000 we didn't have to save it or wait on it in some way. So, the mortgage balance for number one is $200,000 and the interest is $666.
Now what does month 2 look like?
I disagree with your premise, but I'll play along. There's no reason you couldn't pay 2k towards the mortgage at the start of month 1. I would hope nobody's monthly budget is that unpredictable. But anyways...
Month 2
- Mortgage starting balance: 197,711.84 (includes principal payment with regular monthly payment in month 1). Interest: $659.04.
- Put 5k towards HELOC on day 1. Draw back up to 6k. ADB = (3,027.08 + 6027.08) / 2 = 4527.08. HELOC interest = $18.86. Mortgage interest on $189,726.24: $632.42. Total interest: $651.10.
We've discussed this before. The formula for how much you save is entirely dependent on the rate spread and the amount to which you can game the ADB formula. So your interest savings is $642 over the 7 years it takes you to pay off the mortgage, but you still have a HELOC balance once your mortgage is paid off that continues accruing interest for 1-5 months that eats into that savings.
Doing imprecise math, you'd pay another $50-100 on the remaining HELOC balance after mortgage is paid off, which takes you down to ~$600 savings. You saved $7 per month. An extra beer a month. The two HELOCs I've had came with a $150 per year fee. That would put you in the hole.
A lot of effort for chump change. And a far cry from the tens to hundreds of thousands of dollars I always see thrown around in discussions. That's actually the real claim I take issue with--"I move xx years ahead on the amortization table and save a bazillion dollars!". This is also one of the more extreme real world examples there will be (2k per month principal payment with $1500 ADB vs ending balance spread).
PS I'd need to model out the whole life of the loan to get the exact difference between 1 & 2, but the numbers above are very very close.
See, this is confusing because you're saying your savings are over 7 years, but whenever I've tried to say that you save X amount over the 10 years you are paying the loan, you specifically refute it by saying that the loan term is 30 years and you can't get a proper comparison unless you use that time frame. So aren't you saving $7 x 360 = $2520?
The tens to hundreds of thousands of dollars you see thrown around in discussions are vs paying on the normal schedule. We've conceded over and over that if a person just has X amount of dollars lying around at the end of every month and the discipline to do it, then simply paying additional principal out of your checking account is analogous to the HELOC strategy, but I disagree with THAT premise and have been playing along with it forever. I disagree with it, because the fact is, most people DON'T DO WHAT YOU'RE SAYING. In fact, I'd be willing to bet that not a single person on this thread or anyone you know for that matter empties their checking account onto their mortgage every month. So, you keep saying that Brian and I are hacks who are not saving thousands of dollars, blah blah blah, but you're the one who's not saving thousands.
It's like I'm rolling up in a Honda that I fixed up from nothing and you're giving me a hard time because you could TOTALLY ANNIHILATE my PATHETIC RIDE and fix up a LAMBORGHINI if you REALLY WANTED TO................................ but you don't. So at the end of the day I'm in my Honda and you're on your bike yet I'm still super pathetic because you COULD do better than I am... if you really wanted to. Do you get what I'm saying? You're a flaming naysayer that isn't doing anything about his mortgage interest. You moved the goalposts to this hypothetical spot that is comfortable for you to argue from, but you're not actually doing it. I am. I went along with that premise, because you're actually right. IF a person wanted to dump their checking account onto their mortgage every month it would be roughly the same as what I'm doing. Great. I totally concede that. Now let's step out of la la land into the real world where I'm saving thousands on my mortgage and you have money gathering dust in your checking account and you can concede that.
Bruh, slow down. When I talk about having to compare against the full 30 year life, I'm talking about your HELOC/early payoff method vs not pre-paying principal at all, and specifically when to recognize the bazillions in savings. You can't recognize it all up front and say you saved a bazillion dollars on day one. I feel like we keep doing this... you're presenting like 10 different scenarios in the same breath, and then missing the distinction between each one... and then thinking you're catching me in some gotcha when you're actually just missing the point I'm making.
When comparing two payoff strategies that end on the same date, you compare the savings side by side, over the life of those loans, not the full 360 months.
As for the rest about Hondas and whatnot, I have no idea what point you're making. I'm doing just fine with my real estate investments though because I don't chase $7 and instead spend my time doing the real financial analysis to use leverage/debt to maximum advantage. But thanks. The more people who waste their time with this stuff, the less competition I have.
I think you're a very intelligent person who is also weak minded, because you know exactly what I'm saying, but don't have the balls to concede the point.
I conceded that a person can save thousands on their mortgage without a HELOC, because I'm a man and I'm fine with being wrong sometimes. You could be a man and concede that you're fighting for a very hypothetical scenario and NOT saving thousands on your mortgage with or without a HELOC, but you won't because you're weak and afraid of what everyone will think of you for conceding a simple point. A point that everyone already knows is true. Is that clear enough?
Sigh. Obviously paying your mortgage early saves interest, I've never once denied that. I honestly have no idea what point you think I'm unwilling to concede.
And you're not paying your mortgage early, correct?
Originally posted by @Chris May:
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Brian Cardwell:
Nope not saying that at all. The results would be very similar. What I am saying is that I still have easy access to my extra money if I need it for something.
Next question: if you put the $1000 towards your mortgage instead of your HELOC, and kept a zero balance on your HELOC, would you not have access to the same amount of money?
Chris, everyone has acknowledged that that's true, but you're the math guy, so answer this for us. I see other benefits, as I've said, but I'm legitimately curious how it works out mathematically, too, and I'm always wrong like you have said.
In the example Brian gave where throughout each month his balance fluctuated on HELOC and he was paying (5%, I think) on say a $4000 average daily balance, what was he paying on HELOC interest vs 4% on $10,000 if he left it on the mortgage? I get like $16 on the $4000 and $33 on the $10,000, but I'm sure you'll say I'm not allowing for the spacetime continuum or whatever, so how does it work out?
I think I understand the question.
In month one, the mortgage is 200k. Two scenarios:
- Put 2k towards mortgage on day 1. Balance is 198k for the month. Total interest accrued is 198000 * .04/12 = $660
- Pay mortgage with $10k from HELOC on day 1. Pay $5k on HELOC on day one with paycheck. Gradually work up to $8k at month end. Average daily balance = $6,500 ([5000 + 8000] / 2). Mortgage = 190k. Mortgage interest = $633.33. HELOC interest = 6,500 * .05 / 12 = $27.08. Total interest = $660.41
Close. In your strategy you are saving money all month and then paying the $2000 in month two. That's part of the point you have continually ignored. When Brian and I paid the $10,000 we didn't have to save it or wait on it in some way. So, the mortgage balance for number one is $200,000 and the interest is $666.
Now what does month 2 look like?
I disagree with your premise, but I'll play along. There's no reason you couldn't pay 2k towards the mortgage at the start of month 1. I would hope nobody's monthly budget is that unpredictable. But anyways...
Month 2
- Mortgage starting balance: 197,711.84 (includes principal payment with regular monthly payment in month 1). Interest: $659.04.
- Put 5k towards HELOC on day 1. Draw back up to 6k. ADB = (3,027.08 + 6027.08) / 2 = 4527.08. HELOC interest = $18.86. Mortgage interest on $189,726.24: $632.42. Total interest: $651.10.
We've discussed this before. The formula for how much you save is entirely dependent on the rate spread and the amount to which you can game the ADB formula. So your interest savings is $642 over the 7 years it takes you to pay off the mortgage, but you still have a HELOC balance once your mortgage is paid off that continues accruing interest for 1-5 months that eats into that savings.
Doing imprecise math, you'd pay another $50-100 on the remaining HELOC balance after mortgage is paid off, which takes you down to ~$600 savings. You saved $7 per month. An extra beer a month. The two HELOCs I've had came with a $150 per year fee. That would put you in the hole.
A lot of effort for chump change. And a far cry from the tens to hundreds of thousands of dollars I always see thrown around in discussions. That's actually the real claim I take issue with--"I move xx years ahead on the amortization table and save a bazillion dollars!". This is also one of the more extreme real world examples there will be (2k per month principal payment with $1500 ADB vs ending balance spread).
PS I'd need to model out the whole life of the loan to get the exact difference between 1 & 2, but the numbers above are very very close.
See, this is confusing because you're saying your savings are over 7 years, but whenever I've tried to say that you save X amount over the 10 years you are paying the loan, you specifically refute it by saying that the loan term is 30 years and you can't get a proper comparison unless you use that time frame. So aren't you saving $7 x 360 = $2520?
The tens to hundreds of thousands of dollars you see thrown around in discussions are vs paying on the normal schedule. We've conceded over and over that if a person just has X amount of dollars lying around at the end of every month and the discipline to do it, then simply paying additional principal out of your checking account is analogous to the HELOC strategy, but I disagree with THAT premise and have been playing along with it forever. I disagree with it, because the fact is, most people DON'T DO WHAT YOU'RE SAYING. In fact, I'd be willing to bet that not a single person on this thread or anyone you know for that matter empties their checking account onto their mortgage every month. So, you keep saying that Brian and I are hacks who are not saving thousands of dollars, blah blah blah, but you're the one who's not saving thousands.
It's like I'm rolling up in a Honda that I fixed up from nothing and you're giving me a hard time because you could TOTALLY ANNIHILATE my PATHETIC RIDE and fix up a LAMBORGHINI if you REALLY WANTED TO................................ but you don't. So at the end of the day I'm in my Honda and you're on your bike yet I'm still super pathetic because you COULD do better than I am... if you really wanted to. Do you get what I'm saying? You're a flaming naysayer that isn't doing anything about his mortgage interest. You moved the goalposts to this hypothetical spot that is comfortable for you to argue from, but you're not actually doing it. I am. I went along with that premise, because you're actually right. IF a person wanted to dump their checking account onto their mortgage every month it would be roughly the same as what I'm doing. Great. I totally concede that. Now let's step out of la la land into the real world where I'm saving thousands on my mortgage and you have money gathering dust in your checking account and you can concede that.
Bruh, slow down. When I talk about having to compare against the full 30 year life, I'm talking about your HELOC/early payoff method vs not pre-paying principal at all, and specifically when to recognize the bazillions in savings. You can't recognize it all up front and say you saved a bazillion dollars on day one. I feel like we keep doing this... you're presenting like 10 different scenarios in the same breath, and then missing the distinction between each one... and then thinking you're catching me in some gotcha when you're actually just missing the point I'm making.
When comparing two payoff strategies that end on the same date, you compare the savings side by side, over the life of those loans, not the full 360 months.
As for the rest about Hondas and whatnot, I have no idea what point you're making. I'm doing just fine with my real estate investments though because I don't chase $7 and instead spend my time doing the real financial analysis to use leverage/debt to maximum advantage. But thanks. The more people who waste their time with this stuff, the less competition I have.
I think you're a very intelligent person who is also weak minded, because you know exactly what I'm saying, but don't have the balls to concede the point.
I conceded that a person can save thousands on their mortgage without a HELOC, because I'm a man and I'm fine with being wrong sometimes. You could be a man and concede that you're fighting for a very hypothetical scenario and NOT saving thousands on your mortgage with or without a HELOC, but you won't because you're weak and afraid of what everyone will think of you for conceding a simple point. A point that everyone already knows is true. Is that clear enough?
Originally posted by @Chris May:
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Brian Cardwell:
Nope not saying that at all. The results would be very similar. What I am saying is that I still have easy access to my extra money if I need it for something.
Next question: if you put the $1000 towards your mortgage instead of your HELOC, and kept a zero balance on your HELOC, would you not have access to the same amount of money?
Chris, everyone has acknowledged that that's true, but you're the math guy, so answer this for us. I see other benefits, as I've said, but I'm legitimately curious how it works out mathematically, too, and I'm always wrong like you have said.
In the example Brian gave where throughout each month his balance fluctuated on HELOC and he was paying (5%, I think) on say a $4000 average daily balance, what was he paying on HELOC interest vs 4% on $10,000 if he left it on the mortgage? I get like $16 on the $4000 and $33 on the $10,000, but I'm sure you'll say I'm not allowing for the spacetime continuum or whatever, so how does it work out?
I think I understand the question.
In month one, the mortgage is 200k. Two scenarios:
- Put 2k towards mortgage on day 1. Balance is 198k for the month. Total interest accrued is 198000 * .04/12 = $660
- Pay mortgage with $10k from HELOC on day 1. Pay $5k on HELOC on day one with paycheck. Gradually work up to $8k at month end. Average daily balance = $6,500 ([5000 + 8000] / 2). Mortgage = 190k. Mortgage interest = $633.33. HELOC interest = 6,500 * .05 / 12 = $27.08. Total interest = $660.41
Close. In your strategy you are saving money all month and then paying the $2000 in month two. That's part of the point you have continually ignored. When Brian and I paid the $10,000 we didn't have to save it or wait on it in some way. So, the mortgage balance for number one is $200,000 and the interest is $666.
Now what does month 2 look like?
I disagree with your premise, but I'll play along. There's no reason you couldn't pay 2k towards the mortgage at the start of month 1. I would hope nobody's monthly budget is that unpredictable. But anyways...
Month 2
- Mortgage starting balance: 197,711.84 (includes principal payment with regular monthly payment in month 1). Interest: $659.04.
- Put 5k towards HELOC on day 1. Draw back up to 6k. ADB = (3,027.08 + 6027.08) / 2 = 4527.08. HELOC interest = $18.86. Mortgage interest on $189,726.24: $632.42. Total interest: $651.10.
We've discussed this before. The formula for how much you save is entirely dependent on the rate spread and the amount to which you can game the ADB formula. So your interest savings is $642 over the 7 years it takes you to pay off the mortgage, but you still have a HELOC balance once your mortgage is paid off that continues accruing interest for 1-5 months that eats into that savings.
Doing imprecise math, you'd pay another $50-100 on the remaining HELOC balance after mortgage is paid off, which takes you down to ~$600 savings. You saved $7 per month. An extra beer a month. The two HELOCs I've had came with a $150 per year fee. That would put you in the hole.
A lot of effort for chump change. And a far cry from the tens to hundreds of thousands of dollars I always see thrown around in discussions. That's actually the real claim I take issue with--"I move xx years ahead on the amortization table and save a bazillion dollars!". This is also one of the more extreme real world examples there will be (2k per month principal payment with $1500 ADB vs ending balance spread).
PS I'd need to model out the whole life of the loan to get the exact difference between 1 & 2, but the numbers above are very very close.
See, this is confusing because you're saying your savings are over 7 years, but whenever I've tried to say that you save X amount over the 10 years you are paying the loan, you specifically refute it by saying that the loan term is 30 years and you can't get a proper comparison unless you use that time frame. So aren't you saving $7 x 360 = $2520?
The tens to hundreds of thousands of dollars you see thrown around in discussions are vs paying on the normal schedule. We've conceded over and over that if a person just has X amount of dollars lying around at the end of every month and the discipline to do it, then simply paying additional principal out of your checking account is analogous to the HELOC strategy, but I disagree with THAT premise and have been playing along with it forever. I disagree with it, because the fact is, most people DON'T DO WHAT YOU'RE SAYING. In fact, I'd be willing to bet that not a single person on this thread or anyone you know for that matter empties their checking account onto their mortgage every month. So, you keep saying that Brian and I are hacks who are not saving thousands of dollars, blah blah blah, but you're the one who's not saving thousands.
It's like I'm rolling up in a Honda that I fixed up from nothing and you're giving me a hard time because you could TOTALLY ANNIHILATE my PATHETIC RIDE and fix up a LAMBORGHINI if you REALLY WANTED TO................................ but you don't. So at the end of the day I'm in my Honda and you're on your bike yet I'm still super pathetic because you COULD do better than I am... if you really wanted to. Do you get what I'm saying? You're a flaming naysayer that isn't doing anything about his mortgage interest. You moved the goalposts to this hypothetical spot that is comfortable for you to argue from, but you're not actually doing it. I am. I went along with that premise, because you're actually right. IF a person wanted to dump their checking account onto their mortgage every month it would be roughly the same as what I'm doing. Great. I totally concede that. Now let's step out of la la land into the real world where I'm saving thousands on my mortgage and you have money gathering dust in your checking account and you can concede that.
Originally posted by @Chris May:
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Brian Cardwell:
Nope not saying that at all. The results would be very similar. What I am saying is that I still have easy access to my extra money if I need it for something.
Next question: if you put the $1000 towards your mortgage instead of your HELOC, and kept a zero balance on your HELOC, would you not have access to the same amount of money?
Chris, everyone has acknowledged that that's true, but you're the math guy, so answer this for us. I see other benefits, as I've said, but I'm legitimately curious how it works out mathematically, too, and I'm always wrong like you have said.
In the example Brian gave where throughout each month his balance fluctuated on HELOC and he was paying (5%, I think) on say a $4000 average daily balance, what was he paying on HELOC interest vs 4% on $10,000 if he left it on the mortgage? I get like $16 on the $4000 and $33 on the $10,000, but I'm sure you'll say I'm not allowing for the spacetime continuum or whatever, so how does it work out?
I think I understand the question.
In month one, the mortgage is 200k. Two scenarios:
- Put 2k towards mortgage on day 1. Balance is 198k for the month. Total interest accrued is 198000 * .04/12 = $660
- Pay mortgage with $10k from HELOC on day 1. Pay $5k on HELOC on day one with paycheck. Gradually work up to $8k at month end. Average daily balance = $6,500 ([5000 + 8000] / 2). Mortgage = 190k. Mortgage interest = $633.33. HELOC interest = 6,500 * .05 / 12 = $27.08. Total interest = $660.41
Close. In your strategy you are saving money all month and then paying the $2000 in month two. That's part of the point you have continually ignored. When Brian and I paid the $10,000 we didn't have to save it or wait on it in some way. So, the mortgage balance for number one is $200,000 and the interest is $666.
Now what does month 2 look like?