Mortgage Programs

[kv968]

I'm not slamming the system because it will work and I'm sure it'll help some people. However it is no different than what the others have said... Take every bit of discretionary income you have and apply it to the principal each month and you'll get the same results. If not maybe a little better because you're not paying the interest on the ALOC during the month. Skydivingchic posted a good breakdown of that.

It's just the Speed Equity only cost like $25 (the cost of the book). After the free first year they say it'll be a small fee.

Let us know what that "small fee" is when it kicks in.

[skydivingchic]

Yes, I see how the system can work if a homeowner follows the program. All I'm saying is that the "system" involves no magic. It simply applies additional principle to the mortgage. That additional principle is (indirectly) whatever amount of extra income you have every month minus interest paid to the ALOC plus a one-time larger payment upfront (also borrowed from the ALOC).

I'm not slamming the system - and in fact said that if it that is what it takes to get the consumer to put that extra toward his/her mortgage, great. But realize there is nothing really new or novel about it. Additional principle paid = less interest paid over time and less time until pay off.

So, it's like free money for your 1st mortgage every month.

I would point out that it is NOT free money. It is money borrowed from the line of credit. That means you must pay it back plus interest, so that money is actually costing you.

[willowstudios]

I just went to the site and looked it up - after the first free year it'll be $173/yr. That means it'll cost a total of $1384 to use the system...ok, that's not great. But, it's better than $3500 up front - that's from the United Financial people.

Also, if you send your discretionary income without the HELOC it's not the same! The whole point of this system is to use the banks money for years and years to pay down your 1st mortgage at LESS than the interest rate of your 1st mortgage.

The HELOC is calculated daily, so you use the money and then pay it off with your income from paychecks. Over the life of you paying down the 1st mortgage it amounts to TONS of savings that you simply can not do without "borrowing" the money from a HELOC. I'm NOT an expert at this, but I quite honestly do understand the software even though it seems complicated at first. There are videos available when you log in that walk you through the setup process. I've finally inputed all my finances and what's great is I can re-calculate everything based on what I want to spend or don't. It's not like any other software that I've seen and I've tried all the major software out there (Quicken etc). There are tabs where you input everything and then there are charts and forecasts. You can change things to adapt when life changes - like you need $1000 for something out of the blue. If you put that in you can see all the changes that will occur. Yes, I realize that Excel can calculate things in whatever way it does - but, it CAN NOT do what this software does without some Math guru creating a spreadsheet. I have Quicken and it simply does not have any way to trigger and keep track. Maybe if someone spent the time to make an Excel spreadsheet to do all this stuff I would give it a try it, but i haven't seen any freeware out there! All I can say is you need to see it.

I highly suggest you guys spend $25 on the book if you're even remotely curious about the system - OR - sign up for the free Webinar from Speed Equity. Every question you have he'll answer - I'm not a financial guru. (I just pretend on tv)

Seriously, this is one of those circumstances where you need to experience something before you go around talking like you know. It's NOT as simple as just sending money back and forth - it's system that's all about triggering, borrowing and being diligent about not spending what you don't have..

I'm not doubting that simply making extra payments will reduce the length of your mortgage. However, all the research I've done for a whole month points to this system being far superior to just throwing money at random to your principle. That isn't as effective over time like this systems seems to be.

One last thing - who the heck said anything about magic? It's a stupid piece of software that does calculations that help pay off your mortgage in record time. Why is that so magical? It's like we're in middle school here? I'm trying to share information about saving money! This system is becoming the hot topic on forums all over the web, so you might want to Google it and not spend all your time focused on naysayers slamming it who haven't even used it!

[safari]

willowstudios, do you know what the interest rate on the HELOC is going to be? If you're going to borrow money from HELOC to pay down your first mortgage, it would only make sense if that interest is going to be lower than the interest on your first mortgage, which is usually not the case. This is the only thing about this program that I can't seem to understand.

[skydivingchic]

"Also, if you send your discretionary income without the HELOC it's not the same! The whole point of this system is to use the banks money for years and years to pay down your 1st mortgage at LESS than the interest rate of your 1st mortgage."

This statement makes no sense. By using your discretionary income without running it through a line of credit, you pay NO interest whatsoever (not to mention the money paid for the program and the money paid to set up the line of credit). Zero interest is certainly less than whatever interest you pay on the line of credit. So if you simply send in your discretionary income without using the line of credit, you would put more money toward the mortgage principle, and thus further accelerate the pay off.

I went back and reran the numbers for the example given in the presentation. $200,000 at 6%. Four completely seperate online calculators agree that if you put $1000 extra per month toward that mortgage, the pay off time is 10 years 2 months. With the one time extra at the beginning of the loan of $5000, it goes down to 10 years. The software presented gave a payoff time of just over 11 years. Granted, a good portion of that one year's difference is due to the $3500 for United's software. But as you said Speed Equity's software will be a bit less than half that and the rest of the pay off time difference is due to the interest you are paying on the line of credit.

Aren't there some banks that do something similar to this where all your financial assets are tied into one account: your HELOC. You have no checking or savings accounts, per se. All your income goes directly toward paying down your HELOC. If you need to buy anything, you borrow from your HELOC.

So the advantage is you never have "idle" savings. Your money is always "working for you" by keeping your principal balance as low as possible. The disadvantage is that it can be tempting for some people to tap further into their HELOC for frivolous spending.

[willowstudios]

The HELOC will have a higher rate, but since its calculated daily it's not the same thing as the 1st mortgage. The reason you use a HELOC is because it's access to money whenever you need it - when you get a paycheck you're paying it back. When you calculate the interest rates the HELOC will be much less interest. What I've read is that it will be in the 1-2% range depending on your expenses. That's the key - don't spend what you don't have. If you follow a budget and always put your surplus into the HELOC you're all set. But, because life throws curve balls you're suppose to factor in an emergency fund. Some people use cash in a savings account, but since you have a HELOC it's just like having a savings per say. You just tap it when you need it. The software will tell you what you just borrowed and alert you that you just went into the red...so, you can begin to start re-budgeting your money. It automatically with re-calculate to get you back to EXACTLY where you were...all you have to do is re-adjust expenses and savings again.

Yes, it seems like using a regular Excel speadsheet will do the same thing. But, I can assure you after seeing the software and following the directions you'd see how it's not the same.

The reason that a HELOC is different from just sending in your extra money when you have it is because you're borrowing the money! You have to wrap your head around this - it takes a month or so to get into the system of using it. How can using the banks money at very low rates not register with you? All of your money is being used to SAVE interest in the 6% range (depending on your 1st mortgage). How can you not see the advantage of getting on a system that costs relative to what you get back PEANUTS. I'm serious - the more you educate yourself about this thing the better it looks.

Believe me - you need to read the book - I'm 75% done with it. It's all in there. Otherwise, take 1 hour of your life and join the free Webinar at Speed Equity. I'm planning on attending the one tomorrow right.

[cptacek]

Willow, I understand completely how it is supposed to work...I guess I'm one of those math/excel gurus you keep talking about. But I am afraid for you. I guess my question is, if someone offered you a credit card with a $290,000 credit limit (or whatever 90% of your home loan is), would you buy that house with the credit card, send every dime of your paycheck to this credit card every time you are paid and then use that same credit card to pay normal expenses? It seems dangerous to me, and the banks are betting that "life" will happen to a lot of people and they will keep their balance at a very high level, always vowing to return to their budget "next month." Meanwhile, you are borrowing money at a higher rate with the HELOC and paying $173 a year for the privilege of doing that.

[rooskers]

willowstudios,

I have run all the calculations using paper, pencil and my TI-89 calc and sent the paper into a mathematics professor ( he was my advisor and he has a doctorates) at the University I attended to get my bachelors degree to check my work. This system does not pay off your mortgage in 8 - 11 years through any means of manipulating interest rates and average daily balances from you heloc and fixed loan. Granted some of the manipulations will save you money because interest even if it is higher is calculated differently on a heloc but the savings from that is paltry. The majority of savings comes from extra payments (if you want to call this discretionary income, extra income I don't care it is money put in addition towards your regular monthly payment).
My only thing is stop telling people we are not looking at the whole picture and the book will explain everything. I know smoking is bad for me but I don't have to smoke find this out. I have looked at the whole picture. You are right that in this system you can make extra payments through discretionary income (LOL that term makes me laugh) and if for some reason you need a $1000 dollars or some other amount you have access to it unlike a direct principal payment to your loan. However this is exactly why the first thing everyone tells you on this board is to have a 3 - 6 month emergency savings for exactly this purpose. If you get into a rut lose your job and you keep relying on the HELOC you will not be paying off your mortgage in 8 - 11 years but actioning off a foreclosure in 6 months or less.
Now all that said I agree with others if you think this will help you by all means do it. Any system that works for you is a good system. However we are here to tell you this has a great deal of risk involved. You seem pretty adimate about the program so go for it and in five years come back here and tell us how the system worked for you.

[Ima saver]

I am so glad that I do not understand computers or soft ware and just do things the old fashioned way. That is what worked for me and I have been mortgage free for 30 years!

[FrugalFish]

Willow, with all due respect, why are you trying to convince us this is so great? What do you care if we like it or not? Frankly, I think it's great if this works for you, but I personally don't need it to do the exact same thing you are doing and I don't have to complicate mine with extra accounts and putting all my money somewhere I don't care to have it. If our circumstances change for the worse (like a layoff), I'm not tied to something that can get me into trouble by overdrawing it.

My mortgage payment slips have a place to list extra principal I am sending each month, so technically I have not made any additional payments on my mortgage, but have cut 15 years off it mortgage in only 3 years. No additional payments, but lots of additional principal. That's what bothers me about these "systems" is how they are sold that you don't have to make any additional payments- that gives some people the impression that no additional principal needs to be paid at any point- somehow the "magic system" pays the extra principal for you. You and I know that's not true, but there are other people who are going to naively get sucked into this the same way that they got caught up in subprime loans. My issue with it is that they sell lit in such a way that it sounds too good to be true, and that always sends up the red flags in my mind.

[willowstudios]

Here's a blog from someone that just started using the Speed Equity system. I plan to follow this person's experience for a few months - you might want to check it out if you're interested MMA's like me.

Speed Equity Blog At Bacara Ridge

[Frugalicious]

So does anyone know how property taxes and insurance is worked into this type of program??

I think I am going to inquire with my CPA to see if he knows of this or if he has any clients using this type of program.

I will report back what I find out!

[autoxer]

So does anyone know how property taxes and insurance is worked into this type of program??

It sounds like the speed equity system keeps your mortgage but adds a HELOC, so your original escrow would still cover the taxes and insurance.

If the First United system remortgages the whole balance into a LOC, then you will probably have to pay your property taxes and insurance separately, instead of putting money into the escrow and having the mortgage company pay those bills.

[AmyKay]

I have more details now about this program as it applies to my family. Our monthly payment will be about $100 less that we pay now. We will pay our insurance and taxes ourselves, so we will have to budget carefully. The lender is actually offering a fixed interest rate of 6.25%. And if rates drop, we pay around $100 and can "re-fix" it anytime. The closing cost will be $1500, rolled into the line of credit.

There is an annual fee of $50. But no other costs, such as this $3500 for the software some of you are talking about.

Our line of credit will be for $119,000. (We have a small little house because I stay home with our baby.) But after just the first year, we'll have thousands more in equity than with a traditional mortgage.

I can't see why people wouldn't do this, to be honest. Well, if you're not good at budgeting carefully, it wouldn't work, I guess. You have a lot of money available anytime.