Originally posted by @Jeremy Z.:
Originally posted by @Joshua S.:
Originally posted by @Jeremy Z.:
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Joshua S.:
Originally posted by @Steven D.:
This is really starting to remind me of a story back in college. A friend went to a poker game and we asked him how he did.
Him: "I cashed out for $12 so I won $12."
Me: "What did you buy in for?"
Him: "$30"
Me: "So you lost $18?"
Him: "No I won $12"
Me: "But you bought in for $30 and only cashed out $12 so you lost money????"
Him: "But I cashed out $12 so I won $12."
Me: "Ummmm that's not how math works"
Him: "I won $12"
Yeah, that doesn't make any sense. Neither does this one.
Me: "I'm paying $600 to borrow $10,000 that I'm able to flip and make into $20,000".
Everyone: "OMG, If you pay to make money, you're a sucker! What an idiot! Now get out of my way so I can go spend my money on a rental property and make some money!"
Let me know if you ever find another 100% ROI investment with a $600 fee. I'll take it every time. Cheers.
Your ROI is zero if you use a HELOC.
Ok, one last question since you changed your mind about responding to me. I need your advice on this one.
I was thinking about doing the same thing, but with a zero percent balance transfer from my credit card.
I don't have the $10,000 lying around, so that's not a factor. But I can take $10,000 from the card and there's zero percent interest on it as long as I pay it back in their offer period (12 or 18 months, can't remember), I just have to pay a flat 3% balance transfer fee when I do it.
So, I lump the $10,000 on my mortgage and save a bunch of interest like we have talked about, I just have to pay a flat $300 to do it. If I can save all that interest by paying a flat $300, that's cool, right? I don't see any downside to it at all since the savings more than pays for the $300.
I actually do get what you are trying to argue here, and I want to propose another scenario for you to think about... Instead of using a HELOC at 5% or a credit card at 3%, try just saving that $10,000 over the course of the year and then making a lump sum payment to your mortgage. Do the math. It gives you basically the same result.
Jeremy, I keep telling you guys that yes, you can save and save and put together $10,000, but during the course of the year I'm accruing more and more interest. Speed is part of the advantage of the HELOC strategy, you dump the money on your mortgage right when you get the line of credit, no waiting and accruing interest while you save all year. Then as bills come back up, you can borrow against the HELOC and pay them, but in your scenario, you just need to wait for more income because the $10,000 is gone until you sell or refi.
So, look at it this way:
Saving $10,000.
Pros - No cost / free.
Cons - Slow, lack of liquidity / flexibility.
HELOC $10,000.
Pros - Fast, liquidity / flexibility.
Cons - Nominal cost.
It's literally the same thing, you're just swapping $40/month for some speed and flexibility. But given how much you are saving (thousands and years) either way you choose to go THE $40/MONTH IS MORE THAN PAID FOR WHICH IS WHAT MAKES IT STUPID TO WORRY ABOUT. How can a bunch of investors and financial people be worried about spending $40/month to make it more convenient to save thousands? I am beside myself that no one can get their mind around this. It's crazy.
How does the HELOC give you more flexibility? You can only pull out as much cash as you have paid down on it during the year that you are paying it off, correct?
I'm not saying you can't do your method and make it work, just that it is unnecessary and perhaps more work. My question above is genuine, so I hope you respond to it. As frustrating as this back and forth has been at times I have to admit it has been useful for me to think all of this stuff through.
A few people have stated that you can accomplish the same long term interest savings by taking out a HELOC(access to money), but carry a zero balance and instead use your cash to pay down the mortgage. Do you dispute that both methods would accomplish essentially the same thing? It seems to me they would, but I acknowledge that I could be overlooking something.
Well, I have a $20,000 HELOC and only use $10,000 at a time for mortgage payments. You basically use it as a checking account. You put your paycheck in and it goes down to $7000, you pay a bill, it goes up to $7500, you pay another bill, you get another paycheck and so forth. As long as you make more than you spend the balance comes down gradually, but you always have some room on it and your money is always working for you.
The way I think about it is I didn't want to expose my whole mortgage to a variable interest rate and turn the whole thing into a HELOC, so I installed a HELOC on top of my 30 year fixed and moved a portion of the debt to the HELOC. Then I do what I describe above and gradually pay it off and if anything comes up, my discretionary income is working to bring my mortgage interest down, but I can also pull funds out if I need them. That's the flexibility I'm talking about.
I think doing it the other way around defeats the purpose to an extent and I prefer the idea of having actual cash as an emergency fund in case the HELOC gets frozen or something, but I can see a case for doing it that way. One of the main reasons to do it, though, is to use it as a checking account so you can keep a portion of your mortgage debt at a lower average daily balance, which is what I mean by having your money always working for you. If you're going to do it the opposite way it's not the end of the world, but I don't think you're getting all the benefits of the strategy personally.
