CafeMonkey,
Please tell me the following. When you do this hand-waving math when you are trying to sell this program to someone, what interest rate are you assuming the first mortgage is at? What interest rate is the HELOC at? Is the HELOC at a variable rate? Is the first mortgage a 30 year or a 15 year mortgage, or something else? I'm trying to use, not some fancy graphing calculator, but a simple excel spreadsheet to actually compare these numbers.
And, what happens in the second month? Taking your first example, at the end of the first month, you have $95,000 owed in the first mortgage, $5000 owed to the HELOC and nothing in your bank account. You get paid, pay off the HELOC and wait 3 weeks so you can spend your money again so it won't go on the HELOC (which is probably at a higher interest rate). At the end of the second month, you owe $95,000 minus whatever your monthly payment is (you do still have to make those payments, right?), $5000 on the HELOC and nothing in your bank account.
You make it sound like you can transfer another $5000 to the principal on the 1st mortgage, each month, but you can't. You do have to live. So, you get a big shot in the arm for making a $5000 payment at the beginning of the loan, but then, every time you buy something, you are buying it with the HELOC at a higher interest rate and no grace period.
I just looked at bankrate.com, and a $50,000 HELOC has an interest rate of 7.59% (the best rate on there today) while a 15 yr fixed loan is 5.64% (not for a jumbo loan). Here are my assumptions so you can play along at home.
1st mortgate = $100,000, interest rate of 5.64%, 15 year fixed, with payments of $824.53 each month. If you get the mortgate at the first of October, pay $824.53 starting on the first of November, and continue through the regular schedule, you will pay off the mortgage on 11/01/2022. You will have spent $148,488.15
I am going to assume that you get a HELOC so you can put a first time payment of $5000 on your 1st mortgate. I am going to assume that you make the first payment of $5824.53 on 11/01/07 and then make regular payments of $824.53 each month thereafter. Using this schedule, you will pay off the mortgate on 09/01/21 with a payout amount of $142,243.70.
There, you say, you just saved $6244.45 and 14 months off of your mortgage.
Uh, just a second. You paid $5000 up front on the second loan (so you only "saved" $1244.45 on your 1st mortgage), and you had to pay interest each month on your HELOC.
Let's assume that the HELOC has an interest rate of 7.59% that is fixed (which doesn't exist, by the way...a HELOC interest rate is variable, and will likely go up).
So, let's go with your assumptions. You don't spend any money on the HELOC until the 4th week. Let's say that you put $5000 on your HELOC on the 22nd of every month to pay all of your bills. We'll say that means that you have to pay 7.59% interest on $5000 for 8 days every month. That is $8.32 a month. Not too bad a monthly payment, huh? Except you will be doing this for 166 months. 166*$8.32=$1381.12.
$1381.12 > $1244.45. You just paid more in interest on your HELOC than you saved on your 1st mortgage. =><=
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