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FIB - Scams 101
Re: $3500 for software to pay extra on your mortgage?
Posted By: Sue Copening In Response To: Re: $3500 for software to pay extra on your mortgage? (Sandi Bowman)
Date: Friday, September 21, 2007, at 7:03 p.m.(pst)
So... Jim is not willing to compare his results to what the software could have done. Apparently all savings are equal.
Without a side by side comparison though ... how do you know that you could not have saved an additional year or two doing it another way? Or maybe an additional 5 years? Most of my clients are doing MUCH better than 15 years.
If you could just knock one more year of payments off... what would a years worth of mortgage payments invested somewhere be worth?
As for your simple/compound quip... you have not done the math on this or you would not be parroting that over and over again.
Yes.. everyone should be making additional principle payments... most folks do not do that for a variety of reasons... one being that if you throw every penny of your discretionary income at your mortgage and need a new engine for your car next week... you cannot get it back.
This concept of using the heloc solves this problem. You do not need us to do that, of course ... but you DO need a heloc.
Now most people would do this by simply setting up the heloc and then using it as a cushion so they could simply put all extra money toward the mortgage. They would get about 75-80% of the savings doing that and it is an EXCELLENT IDEA. Everyone should do that as a bare minimum.
They should also cash-flow through the heloc by treating it as a checking account. They do not need us to do that either... and that will also save them interest as they will keep the average daily balance of the heloc lower that way. That might get them an additional 5% in savings.
HOWEVER... to get the extra 10-20% of the savings that you would get with our program... you need to dig into the heloc and do some controlled short term borrowing. The idea is to stay AHEAD of your amortization schedule. The key here is CONTROLLED though... as if you dig into heloc too deep... you pay too much interest. Skimp on the primary though... and you cost yourself interest you COULD have saved - but did not. Keep in mind that if you short the primary mortgage a measly $1000 in the first 15 years of the mortgage... you just cost yourself $4000 in interest that you did not save. One simple mistake and that $3500 you saved by not buying the software tool... gone.
Of course, most of us are not going to think that we would do as accurate a job as a software program... nor would we want to waste time trying.
Now let us look at the TIME value of one transfer... as an example... let us say that during a 13 week period your discretionary income would add up to $5000.
So... you would have a choice... save up the $5000... OR... borrow the $5000 from the heloc and pay it back with your paycheck.
So... put it in now by borrowing from heloc.. or wait to save it up? What is the difference?
If you put the $5000 into your mortgage 3 months earlier (on a 6% $200K mortgage) you save an EXTRA $262.00 in interest on the primary mortgage.
Because you pay back the $5000 on the heloc side on a declining balance with your weekly paychecks... you only PAY about $70 in interest to borrow that from the heloc.
So... borrowing from the heloc, versus saving/waiting, puts you about $195.00 ahead. A tad more actually because that $70 is actually tax deductible for most people... so it may end up costing you only about $50.
Save $262
Pay $50-70Seems simple to me.
OH... and this does not take into account the value of your stagnant money either. If you are a person who generally has about $3000 sitting around in checking/savings waiting to be spent.... that will save over $9000 in interest on your mortgage on top of time-value transfers.
You can be skeptical all you want... but one day you might actually do the math and you will see that this works better than you ever thought.
As to the comment made about it only being a good idea to pay extra on the mortgage if you stay in the house (from a Banker perhaps?) ... isn't it a good idea to build equity and save interest even if you are going to move? After all... you still saved a bunch of interest... and you now have more equity when you sell. I do not understand the mentality of ignoring the opportunity to save interest simply because you are not going to stay there. That mentality is not serving some people well right now. People who are finding that they are upside down in their house and cannot sell it because they cannot come up with the money to pay off the mortgage. If they had been accelerating the mortgage - they would have been able to sell. OR if they were one of the poor folks who's ARM adjusted, they could Re-Fi.
But... regardless... congratulations on paying off your mortgage... feels good does it not?
It is just too bad that more people do not do it. Our country is headed for some serious disasters. Used to be that there were 3 things folks depended on for retirement... Social Security, Pensions and Savings.
Social security used to have 16 people paying in for each person collecting. now it is like 3 to 1. Obviously the system is going to bankrupt itself and while the government will most likely fix it... it will probably entail people receiving less in pay outs. How many people live comfortable on what they get from social security now? What would a 30% cut mean?
Pensions? Out of a room full of 200 people tonight... 4 had pension plans. They, of course, have to hope that their company stays solvent, since it seems that the first thing companies do when they run into financial difficulty is raid the pension fund. Ask the Enron employees how well their pension plan held up.
So ... you would think that with those two things looking rather bleak... that more folks would be SAVING their money right? Wrong. We are in a negative savings mode for the first time since the great depression. And back then, we had an excuse, since unemployment was so high. Now... we have low unemployment and yet people still do not save. Not only that... they have credit card debt on top of zero savings.
30% of the American population has a net worth of less than $2500. Many of those folks live in fancy houses and drive new cars. But add up their assets, subtract their debt and they might not be worth as much as the gentleman that mows their yard for them.
If people do not wake up soon and get out of debt... I fear what lies ahead for them... and for this country.
SO... to the folks reading this... Whether you want a tool that gives you guaranteed results... or whether you want to use the guessing game approach and just give it your best shot... at least DO SOMETHING!
But if you do not do anything... I want you to think of this conversation every month when you are writing that check for your mortgage payment. Opportunity might knock at your door... but it is up to you to answer it.
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