All Forum Posts by: Joshua S.

Well, I guess that's why we're not getting along. You look at exactly how much you're saving and total vs annualized as critically important and I don't see it as important at all. What I'm looking at is that my money is actually doing something instead of sitting there. In other words, you're right the HELOC is sort of a discipline tool, not a magical vehicle. But in my defense I feel like I keep saying that in different ways (although maybe not as succinctly) and pointing out the benefits in real world details (not rates, but that I'm paying a small amount to easily keep my money working for me) and you keep going back to what YOU see as important and being defensive and hostile instead of seeing any merit in what I'm describing.

It's like what I mentioned about the bakery and the tire shop. I'm telling you over and over that I know the tire place may make a little less money, but it's in a better neighborhood, they do zero marketing, it's insulated against financial downturns, etc. and you keep saying that I will make more with the bakery. I know that if I'm NOT paying HELOC interest, I'm paying less money than if I AM paying HELOC interest. I understand the points you've made - that I don't need the HELOC to pay extra toward principal, for example, but instead of acknowledging that we both understand it and moving forward from that point (and instead of discussing it with an open mind or accepting any of the benefits I'm describing) you're still trying to beat me over the head with it because that's what is important to YOU. There are better investments out there FOR YOU, because you don't care about getting out of debt as much as I do. The bakery makes more money, the bakery makes more money, the bakery makes more money. "I know, but the tire place......." THE BAKERY MAKES MORE MONEY, THE BAKERY MAKES MORE MONEY. I get it, Chris. I don't need the HELOC. I could just dump all my money on my mortgage at the end of the month and keep the HELOC as backup. There are better investment returns out there. Flashing red letters - I get it.

But at the same time, my money is working for me and yours is sitting in an account and you guys are chastising me about opportunity costs, which is hypocritical and you're not perfect, either. So, if we do move forward now or eventually, hopefully you can reboot your attitude (ie. get off your high horse) and realize that I'm not trying to convince you to do what I'm doing or it's the best thing ever, I'm trying to convince you (and any readers) that there are benefits that you don't seem to want to acknowledge because they are not a good fit for YOU. I'm getting out of debt early, I'm getting a guaranteed return, I'm getting a very high "PERCEIVED" return because I don't care that technically I might be saving over the next 30 years, I'm keeping my money working for me all the time instead of letting it sit in my account all year or even all month, I'm using "free money" to make a solid investment, etc.  You obviously don't care about that stuff and you'd rather stay in debt longer, let your money sit around in a checking account, earn a variable return on your investments, etc. - fine. We're totally good. To each his own, right? To each his own.

That's cool, like I said we'll have to leave it here. I guess the only other thing I wanted to mention is that you guys are so focused on what else I'm not doing with my money - comparing what I'm doing to stocks or magical savings accounts, etc. - and you say I'm missing out and not making the best investment, fine. As I said, opportunity costs are a great way to wish your life away. What were the opportunity costs of all the toys my parents bought me when I was a kid since they could have invested in Apple, right? But you're chastising me for opportunity costs and not getting the best return and you're missing a glaring contradiction. I'm sure you all have money sitting in a checking account right now, correct? Maybe you're waiting for bills or saving up for a purchase or saving up for an investment, but the money is just sitting there currently, right? Earning nothing or next to nothing?

What are the opportunity costs there? I'm using my extra income / checking account to pay down a liability and save on mortgage interest and your money is just sitting there, so how can you guys tell me there are major opportunity costs to what I'm doing when in a direct comparison you're not doing anything with the equivalent funds? Obviously, we all have savings accounts, investments, etc. but in a direct comparison (again, the only way you can figure out opportunity costs) on income / checking accounts, my income is working on holding my mortgage balance down and yours is just sitting there, so who has opportunity costs - you or me? 

The reason the rate doesn't matter is because it's not costing me any money. If I put $10,000 in the stock market the rate matters because I'm trying to calculate my "return on investment". In this scenario the "investment" isn't costing anything, because of reasons I explained. That's why I compared it to getting an inheritance - it's free money. If you sign up for that Acorns service and every time you buy a cup of coffee they drop 32 cents in your investment account and then you make interest of off of it, that's free money, too, for all intents and purposes. You're not missing it. I have investments like stocks, rental properties, and savings that I eventually plan to invest when my kids are older. The money that's going to this process of paying my mortgage early is the money that was just languishing in my checking account and not helping me in any way. It's like Acorns but for my mortgage. It's the extra dollars lying around that I'm not using for anything else.

The only other thing is looking at opportunity costs, but I don't run my life around opportunity costs and most people don't. It's just an idea investors use to second guess decisions. If you buy a bakery, the opportunity cost is that you could have bought a rental property or another type of business or god knows what. The possibilities are infinite, so how do you calculate it? If I buy a bakery tomorrow for $50,000 and make $50,000/year what are my "opportunity costs"? Maybe that $50,000 could have bought me a salon that makes me $60,000/year or a tire shop that makes $30,000/year. To calculate opportunity costs you need to take infinite possibilities and select one for a direct comparison, which makes no sense. It's just an idea that doesn't have any bearing on the real world. And as I said, maybe I select the tire shop at the lower return vs the bakery because I believe it's insulated from a financial recession and safer money or it's in a better neighborhood or the marketing is lackluster and I believe there's more opportunity than with the bakery. What are all THOSE opportunity costs? If anything when comparing money sitting in your checking account waiting for bills vs money going to early mortgage principal, the "opportunity costs" add up when you just let the money sit there.

As far as the time question, that's fair to a point except Chris was doing the same 30 year thing and I already debunked it. If Target closes stores to save money the projected savings go to the bottom line immediately. They don't have to wait around for 30 years to collect the savings and then use the money. When I pay my mortgage early, I can project that in 10 years or so I will be out of debt and save $100,000 over that course of time. So, the $11,400 I pay in HELOC interest over the next ten years saves me $100,000 in mortgage interest over that time and it's almost 900% return on that money. It's "projected", but your whole life is projected. If I take 15 minutes and save 15% by switching to Geico, I don't have to sit around and wait for the returns, I know that 15% of my previous bill can now go toward gas if I want to take a trip.

This is what I've been talking about. You guys are so rigid about math and comparing numbers that you can't see the forest for the trees.

It's funny that you say I'm wrong, but then you blatantly disregard the whole premise of what we've been talking about. Seems like trolling at this point and that's really too bad. Obviously when I pay my "first credit card" with my "second credit card" I then pay my second card off with cash every couple weeks when my income goes directly on the account. Isn't that what we've been talking about this entire time? You thought I was paying with the HELOC and then letting it sit there, huh? Wild. That's a very different strategy, so either you're not paying attention or you're deliberately misrepresenting my point. I'm not going to ask you which because it doesn't matter, I'm just saying that it's clearly one or the other.

So, here's the last thing I'd like to ask at this point, because I'm tired of the discussion and I'm hoping we can wrap it up for now. You said earlier that when I pay $10,000 I save $26,000 of interest in our Bankrate / hypothetical scenario, albeit in a different way from what I was initially describing. That's been deliberated and agreed upon and confirmed ten different ways. So, when I put the money on the HELOC so I can goof around and not save interest and whatever else you want to say about it, it's costing me about $114/month in HELOC interest and I'm on pace to pay it off in about ten months for a total of $1140.

Because I think that the HELOC / mortgage thing and especially PERCENTAGE RATES (which you are all about and I couldn't care less about) are obfuscating my point (perhaps deliberately on your part I'm now wondering), please, let's use an analogy for this question.

Imagine my Aunt Diane died and left me an inheritance of $10,000. The only strings are that I need to attend her funeral and pay an administrative fee to do the paper work at a total of $1140 for the plane ticket, hotel, and paperwork. So, now I have my $10,000 and I like the idea of saving on mortgage interest, so I put the $10,000 on my mortgage and save the $26,000 we've confirmed over and over. How much did I net out?

Now I know when I borrow money from the HELOC it's not an inheritance, but hear me out - I'm not taking out the checkbook and paying a car payment for example and then worrying I won't have enough for milk. The process of paying it down is seamless and organic and I don't have to watch my checking account balance or worry that I'm putting too much or too little toward whatever, the money is just paid back automatically as I go, so I don't miss it. It was just sitting there gathering dust before. If I want to buy a TV next month I buy it and that much less goes toward the mortgage and the month after that maybe we're a little more frugal and so on, but it gets paid when it gets paid. So, I know you'll probably disregard this point, but if my bills are paid and I have savings and investments and all my extra income automatically goes on my HELOC to chip away at it, what do I care - it's pretty much like free money to me. Kind of like those services such as Acorn that round up all your transactions and put the pennies in an investment account. Technically, you're setting aside money for investing, but since it's barely noticeable it's almost like free money in a sense, right? I know you'll never agree to that, because you're a math Nazi and all, but the average person can probably understand what I'm saying. Like how you don't miss the money that's going to your 401K every month, because it's behind the scenes. It's not that it's not happening, but it doesn't feel like you are funding your account because you never see the money and therefore don't miss it and your account just grows.

And aside from the "feel" I just described as I've told you before the $10,000 was already going to the mortgage, anyway, so technically I'm not spending anything extra on this prepaid principal "investment". You never addressed that last time (probably because you don't want to admit it), but it's true. Unlike investing in stocks or buying a business or any other investment, I already owe the mortgage as a huge liability, so paying it back early didn't actually cost me any money. Voila, it IS like an inheritance! Of course, you'll always have opportunity costs whether it's truly an inheritance or my extra income or whatever and I get that, but there are opportunity costs to everything. My kids cost me money and what could I do with all the money I spend on them, right? You make choices and you live with 'em. That's why when you guys go on about the opportunity costs and the time value of money and all that it makes me yawn. It's like wondering what your life would've been like if you took Stacey to the prom instead of Melissa. Who knows? Maybe Stacey eventually got a crack in her foundation or you had to take the tenants to court or she needed a new roof or something. Stacey is really a rental property, btw. Opportunity costs are just an educated guess, nothing more. They're really a pointless way to second guess yourself, to be honest. And I would say that generally when you give up a better rate on one investment you're usually getting something out of the other investment that compensates for it - higher liquidity, lower risk, guaranteed returns, etc. That's probably an unpopular view, too, but every time you go out to dinner that money could've paid for a college text book for your kids in 20 years, so I think it's very hypothetical / flimsy idea to worry about or let sway you.

So, hopefully this clarifies where I'm coming from. I pay $1140 to get another inheritance every year and put it on the mortgage and net out X savings and as long as my rich relatives keep dying I'm golden. Seriously, though, the $10,000 doesn't cost me anything to pay back both because it's seamless and it was going there, anyway, so I'm netting about $34,860 from this endeavor after I pay the HELOC interest, right?

Haha. Prepaying mortgage principal saves money on interest - Suze Orman and Dave Ramsey will tell you that, it's mainstream financial knowledge - but because I'm using a HELOC to make it more convenient, it's no longer true.

Gotcha. I think we're officially done for now. I'll be back with more updates at some point and you can tell me white is black and black is white some more. 🤣

I don't know why you think I'm sure in my belief if I'm literally telling you that this is the layman's perspective and asking you to explain where it's wrong. If I had to estimate how many times I've asked you to clarify or explain I would say it's over 50 going back to a few months ago. And then from my perspective you shift the argument to some other angle or in this case you're saying there's just too much to unpack and therefore you can't answer the (simple?) questions I'm asking. 

So, here's my ultimate point - everyone is saying that this strategy "doesn't work" or maybe to be more exact "doesn't save interest" or whatever exact verbiage you want to put on it. But then your way of explaining that it "doesn't work" is basically to say that there are better ways or better investments or better snow owls or better lions. Everything is so much better that you can't see any benefits. If you're going to ride your bike to school it's not going to work because you're leaving your car behind. No, it will work and has certain other benefits that driving the car does not.

I can take my $10,000/year and save toward a business, I can put it toward stocks, I can save toward nothing in particular, I can spend it like everyone else does on nice cars and huge TVs, I can spend it at the strip club, buy another rental, I can put it toward the mortgage, I can put it toward the kids' college, I can give it to charity, etc. I can drive, bike, walk, take a train, take a plane, get a ride, telecommute, etc. You get it? I'm not saying that this is the only or best way to spend the money or that this is the only way to pay down your mortgage. What I'm saying is that it "works" in the sense that it's an easy way to make sure all of your extra money is going toward your mortgage and I feel that that's a pretty good place for it. And that prepaying your mortgage in any way saves you interest, which everyone knows. You're so mired in rates and math and that you'd rather drive than ride that you're not listening. That has been the case from the beginning. You refuse to see that even though I may be on my bike or on the train, I like the benefits I'm getting and that someone else might.

You may want to buy stocks or spend it at the strip club or whatever, but in my opinion you get a guaranteed return of [keeping all your money and getting another dollar for every dollar you put in]. Call that whatever rate you want, but I can't get a stock return like that much less a guaranteed one. I'm getting out of debt, something none of those other investments offer. The HELOC allows me to essentially stash my income in the mortgage and make sure it's working for me instead of sitting in a checking account waiting to be used. I'm paying each chunk of $10,000 with all of my income but still able to pay my bills, which is very different from just paying a chunk of my income toward the mortgage each month. Again, I realize I could surf to work, but I'm getting a ride in the back of a pickup and the benefits I'm getting suit me and anyone like me who would want them.

But instead of looking at the fact that it's a different way of paying, that you get a dollar for dollar return, that you're putting all your income to work in a user friendly way, etc. my math is wrong, I could just get a HELOC as a backup and dump my extra income on my mortgage every month, I could put it in the stock market, I could put it in a magical savings account with the same rate, I could huff glue and have a fist fight with my neighbor, I could wait for 30 years to collect all my savings together, etc. You're closed minded and not willing to admit the benefits of something that clearly has some, because you're defensive and don't want to admit that everything is not all about math and better / worse. You probably have investments right now that could be doing better, but you're doing something with it and even though they aren't "perfect" you like the benefits you are getting, correct?

Awesome, that makes a lot more sense. That's what I've been asking forever. Ok, so I understand that technically the rate of return is the rate that you borrowed the money at, but how do you reconcile that with what we said earlier about the real life results? If I pay $10,000 extra per year for ten years and save/make $100,000 off of it over that time, it comes out to 10% per year and 100% total ROI over the ten years from the layman's perspective. I think it goes back to the idea that I'm looking at the time I'm in the game and you're looking at the full 30 years, correct? Remember how that went? Wal-mart closes some stores, the future savings are added to their bottom line, and the stock goes up because shareholders can expect better performance going forward and all that. When I save the $100,000 over the next ten years, that's a real world result of avoiding liability and my "account" is at $200,000 in the sense that I kept my original $100,000 in equity and saved $100,000 in interest. I guess what I'm getting at is how do you reconcile the 4.5% thing with the layman's perspective I'm describing? Which piece am I not accounting for and why does it matter in terms of the real world results? Are you saying that it's just not happening or is it your whole "you must collect savings over the following 20 years" thing?

And there's no magic savings account with 4.5% interest, so let's come back to real life with that, too. If I put $10,000 per year for ten years into the stock market at 9% compounded monthly it comes out to $170,230.41. I have to hope I can get 9% to come close to my guaranteed $200,000 above. I get what you're saying that the rates of return are supposedly the same, I really do, but what I'm saying is that I can see my mortgage company (and amo calcs) telling me that I'm saving $100,000 with a $100,000 investment and paying my mortgage off in ten years, so are you saying that this real world result isn't actually happening or are you saying that it's happening, but I'm calculating it wrong?

Chris, the problem with this is that in number one your savings - or what the $10,000 hypothetically grew into in this comparison - is just under $26,000. That's what I've been trying to say / understand. The savings is $26,000 ($136,000 - $110,000) in your scenario, but by your own admission none of your bank account calculations match up with that, yet you're saying it's the same. How can $10,000 save you $26,000 on the mortgage and net you $22,879 in the bank and those two things be the same?

Sorry, Scott, but you're still not getting it. Bankrate says that a $10,000 payment on a $80,000 loan saves $19,000 ($57,500 - $38,500) in interest. But $10,000 compounds at 4% as follows according to financialmentor.com:

24 years monthly - $26,075.30 (24 years remaining on the loan after the $10,000 payment in this case)

24 years annually - $25,633.04

28 years monthly - $30,591.51 (28 years remaining on the typical loans we've been talking about)

28 years annually - $29,987.03

30 years monthly - $33,134.98 (30 years in case you think that the hypothetical compounding for the rest of the loan term matters)

30 years annually - $32,433.98

I just added in the annual numbers in case you were thinking the monthly numbers must be wrong. None of these amounts is even close to the $19,000 savings quoted by Bankrate. Do you notice how I keep moving the target / loan amount? It's because $10,000 x 4% for the remaining months can't possibly calculate the savings accurately on different loan amounts. A $10,000,000 loan and an $80,000 loan have different amounts of scheduled interest and different amounts of interest saved with an extra $10,000 payment, but you're trying to rubber stamp every loan with $10,000 compounded at 4% rate for the remaining years (or 30 years, that's unclear to me) and it's not possible. Again, if you want to see it in real time, just do it on your own. Compare the savings on a $10,000,000 loan and a $80,000 loan both with the extra $10,000 and all at 4% and you'll see the savings amounts are different. If the savings amounts are different then you can't possibly use the same numbers to get different answers. @Chris May knows I'm right, if he's honest he'll come and tell you.

Wow, I guess I didn't realize that's how it worked. So, I just went to the calculator and jacked the mortgage amount up to $10,000,000 and the total interest paid is $8,240,671.15. Then I put in a principal payment of $10,000 and the interest went down to $8,212,337.92. So, you're saying that the $28,000 savings Bankrate is quoting is just a lie, I guess? The real savings is $400 x 30 years = $12,000 no matter what, huh? I wonder why they would lie like that. Maybe George Soros is paying them off or Ted Cruz's dad killed JFK or something. I just can't believe a reputable calculator would even have buttons to change things around if the answer is always just the annual amount of interest times the number of years. Crazy stuff. Did you know that Thanksgiving and Easter used to be on the same day, but the turkeys and bunnies couldn't get along?