All Forum Posts by: Joshua S.

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?

This is very well said. The thing I don't get is the nitpicking because it's not "perfect" or because we are describing it incorrectly. If I have cancer and go in for chemotherapy, it's basically poison that also kills healthy cells, but it's still better than cancer. In my opinion, if you are paying maximum mortgage interest and have money sitting in your checking account it's akin to having cancer and not wanting treatment because it's not a "cure". The HELOC thing is a way of "treating" the "cancer" / mortgage interest, but it has some drawbacks / flaws. At least we're doing something about what we think is a problem. They see the problem and are investing in other things hoping that they come out ahead. Fair enough, but there's more than one way to skin a cat.

We're saying over and over that the HELOC isn't magic, it's just a tool to focus your money on paying off your mortgage, it's the fact that you're paying off your mortgage early that's saving you money, etc. etc. but it's not good enough. I guess we just can't conform enough no matter what we say.

Maybe it's because these guys have all resigned themselves to being in debt for 30 years and hoping that their investment returns outpace what they are paying toward housing and they can't stand that we might be out of debt AND THEN investing. The world wants sheep, I guess. Crazy stuff.

I'll answer this generally, but I'm not going to give out the amounts of my bills and income for obvious reasons. That's part of the reason we've been talking about hypothetical scenarios.

1. $10,000 every ten months or so.
2. X (US Census Bureau says the median household income in 2016 was $59,000, so you can use that or some other round number)
3. X, around 10 bills. House, rental property mortgages, son's daycare, heat / electric, credit cards (paid off each month, used to get cash back), etc.

I'm not sure why you would need my personal numbers, but for any calculations at $10,000 every 10-12 months or so you can gather that we have $850-$1000 left over each month. Some months more, some less, but It's not really about my personal situation. I may have a higher income than you, but have less left over at the end of the month than you do or I may have a lower income income than you, but have more left over than you. The bottom line is for the process to work you have to have money left over at the end of the month, so you can work off of that assumption. Why don't you plug your own personal numbers into the process and show us how it works out?

Those are good questions, but there are pretty easy answers to all of them. What happens when something goes wrong if your car breaks down or you lose your job? The same thing that happens if you just had a mortgage. You deal with it. When you pay a chunk from the HELOC to the mortgage you have the same debt you had yesterday, you just have the ability to use your income to hold the balance down for part of the debt and still use it for bills. You gained flexibility in return for a little extra interest on the HELOC. If you lost your job would you denounce the fact that you bought a bus pass in case your car breaks down? People pay for flexibility and convenience all the time. You do it every time you use the gas station on the way to work instead of finding the cheapest place in town. The HELOC isn't an additional liability, it's $190,000+$10,000 instead of $200,000 and the ability to have all of your income working for you all the time instead of sitting in a checking account.

And to answer your last question, you don't necessarily NEED this psychological tool to pay extra to your mortgage, but it's not ALL about forcing yourself to have discipline. When you have $190,000+$10,000 and you get a check it becomes $190,000+$7000 and then you get another check and it's $190,000+$4000 and you pay some bills and it's $190,000+$5000 and so on. Your money is actively holding down a portion of your mortgage balance all month, not just when you make your normal payment. Do these "interest savings" wash with the additional rate you pay to the HELOC? Maybe, but maybe not. At least you're trying to keep your mortgage balance down as much as possible and save a little while getting the "psychological" benefits.

PS - Chris, I moved off of the other thread because I realized that there's nothing else we can "learn" about each other's viewpoints and your negativity is tiresome, but you followed me. So if you want to keep fighting long term, that's fine, but don't forget I at least tried to lay off because I know we're sick of hearing from each other.

Nooooo, you're missing the third category, brother! People who can see the endless cycle of homeowners wasting away under their debt because they don't understand how much they are paying to mortgage interest and promote the idea as an easy way to keep their extra income going toward getting them out of debt / saving money. Yeah, you can just put all of your income toward your mortgage, but you admitted last time that you have money sitting around in your checking account while you pay maximum mortgage interest, so let's compare doing nothing and staying in debt as long as possible to my flawed solution. I win.

My daughter is having a food drive at school and we were planning on taking canned goods, but maybe we shouldn't since that's not a perfect solution for getting every last homeless person off the streets. Thanks, is there a special bible for cynics or were you just raised that if you can't work it out using math it doesn't exist? :)

I don't think that's correct, try this for me. Go to the calculator below and put in an additional monthly payment of $833.33 ($10,000/12) and check the savings and the payoff date on the amo table. Then zero it out and put in a yearly prepayment of $10,000 a la the HELOC method. The savings are higher by a few thousand and you pay it off a little sooner in the HELOC method, correct? Maybe that's ultimately offset by the slightly higher interest you are paying on the HELOC, but the "chunks" seem to have a slight advantage over additional monthly payments.

But overall I just think you're looking at it in the wrong way. Most people don't have the extra money to pay that much more principal each month, nor the discipline to do it even if they have the funds. By putting a chunk of your mortgage on your HELOC and then managing it like a checking account (bills out, income in) you are paying it down organically as long as you make more than you spend. It's just paid naturally over time and you don't really miss the money. Call it a psychological advantage similar to the way your money goes straight on your 401K every month. If most people got that money each month and tried to force themselves to invest it, they'd probably fail and take a vacation or buy a new car. The fact that it's behind the scenes helps keep it safe from human nature and you can't really mismanage it. This is the same thing. You put a chunk of your mortgage on your HELOC and then you whittle away at it through your normal course of life and then do it again. It may not be a magical formula to save you millions and all that, but I'll bet you have money sitting in your checking account right now doing nothing and all of my money is holding down my mortgage balance and saving me interest at all times. There are differences in the HELOC strategy, you just don't seem to be looking for them.

https://www.bankrate.com/calculators/mortgages/amo...

Sorry if this has already been answered, but I haven't read the whole thread. Hopefully I can clarify some part of it for you. First of all, some people advocate getting a HELOC and using it to pay off your whole mortgage, but this exposes your entire mortgage to a variable rate and that's generally a bad idea. The other recommendation (the one I have done) is to get a smaller HELOC and use it to pay large chunks on the mortgage, which exposes only a portion of your loan to a variable rate. Basically, the idea is that instead of using a traditional checking account where your money sits around waiting for bills, you pay say $10,000 toward your mortgage and then you use the HELOC like your checking account - income goes in, bills come out. As long as you are making more than you are spending and have money left over each month, that money automatically / organically lowers the HELOC balance over time (hopefully a year or so). Then you reload and do it again.

Some other people I've talked to about it say that it would be better just to take all your extra income and put it toward your mortgage each month and use a HELOC as a backup in case you have an unexpected bill. This way you're not paying interest on the HELOC but still paying down your mortgage early and saving interest. I think that's fine, but when I put a chunk of $10,000 on my mortgage and see that I've saved $20,000 in interest I don't mind paying around $100/month interest to the HELOC to sort of make it an easy / seamless process. It's like a financial discipline tool in a sense. Some people use an investment advisor at $X/month to supposedly get them greater returns and keep their money safe - I regard the HELOC interest as a fee to easily keep my money working for me instead of sitting in a checking account gathering dust. People think of the HELOC as another bill, but when used in this way you're not "paying it" every month like a bill out of a checking account, your left over income is automatically paying it down for you. I think of it like that service Acorns that rounds all your purchases up to the nearest dollar and drops the pennies in an investment account.

Most people struggle with paying down their mortgage especially early on because their balance is so high that they are paying a ton of interest and can't make any real gains on equity. The point of doing this is to keep your mortgage balance down throughout the month so you aren't paying as much to interest. You sort of "install" the HELOC on the mortgage and then use your income to keep the HELOC balance as low as you can all month. Since you are charged interest on your average daily balance, keeping the balance down as your income and bills come and go lessens your interest charges. Detractors say that you're not really saving on interest mathematically, which may be true, but I can see on my mortgage website that I've painlessly saved about $50,000 in interest and shortened my payoff time by about 4 years so far, so what do I care if the math says technically I don't have all my savings until 30 years from now or whatever. Paying your mortgage early (regardless of how you do it) gives you a guaranteed return of at least the rate you borrowed at and gets you out of debt, so finding some easy way to do it makes sense for me. Other people will tell you to take your extra income and put it in the stock market because you can greater (variable) returns there while you stay in debt longer. I prefer my approach. Hopefully this helps.

Some businesses take out second or even third loans for various purposes, everyone knows that. I have a loan with the majority of my balance on it and a revolving line of credit that allows me to keep my money working for me. Everyone is stuck on the idea that "one is paying the other", but I look at it like I "installed" the credit line on the mortgage so I could use all my income toward keeping my mortgage balance down and then still use it to pay my bills. If a mainstream mortgage existed that did the same thing I'm sure everyone would think it's brilliant, but I'm an idiot for rigging it together. Classic!

This is the most unimaginative, uncreative, cynical group of people I've ever come across. :)

PS - One thing I find especially funny that I forgot to mention before is that people take out business and school loans all the time based on the projected returns that they can make or some other advantages they can get, but paying a small amount to a separate vehicle so that you can easily keep your money working for you is the devil. LOL 

Like, for example, if there was a plumber that thought he could eventually make more money and/or make his life easier if he took out a loan to buy fancy new equipment that helped him with efficiency. Treat that guy like dirt because he's spending money to get certain advantages! String him up in the town square because he could get a better return on that money in the stock market!!! Aaaarggg! 😂

Anyway, just sayin'.