Mortgage Programs

[autoxer]

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.

How much is from reducing interest charges and how much is from increased principal payments?

[dayana]

Mortgage Calculator Tips

Using a Mortgage Calculator

Consumers should make use of the various free mortgage calculators to figure out costs and benefits of the different types of mortgages for themselves. This way, you don't need to call your broker over every question, ever interest rate change. Mortgage calculators can help gauge the benefits of refinancing an existing loan as well. Mortgages and mortgage calculators may seem somewhat intimidating until you've used them a few times, the control they give you over your finances and the knowledge you obtain about interest rates and loan programs makes a huge difference in your financial success in the future.

[Ima saver]

Amy, how much are your taxes and insurance? Were they part of the house payment before?

[AmyKay]

Our taxes are $1800/year, and insurance around $625. We will pay that ourselves. yes, they were escrowed before. Our monthly payment will still be a tiny bit smaller.

[Ima saver]

So you will be paying $1200 a year less, but have to come up with $2425 extra to pay your taxes and insurance once a year.

[cptacek]

And that $1325 difference per year is probably a big chunk of the difference in the total.

[CafeMonkey]

Hello all, I'm new to the forums, but not to investing or saving. :-)

I'd like to back up Willowstudios here... Some of the posts seem to not follow the premise of the system. Most of the posters are under the assumption that these systems are "just a principal addition" scheme, hidden under fancy clothes.

The reality is that they are shifting interest. And shifting interest does what all interest does... It compounds. That's the "magic" that was discussed earlier.

The reason this can be more powerful than investing your discretionary income into the stock market is that your home interest rate is defined. When you decrease your principal, you're getting an 8% return on that investment. Sure, it's an "anti-investment" in that you don't get a check from your house, but instead get relief from having to make that payment later.

Take a $100k mortgage... If you leave the debt there and make a minimum payment, you're paying interest on $100k.

So, let's shift this a little. Let's get a HELOC, and put $5,000 from the HELOC to the 1st. Now we have a $95k first and a $5k HELOC. Still at $100k in debt, right?

So, here's where the "money shifting" comes from. Today, when you get your check direct deposited from work to your bank, what do you do with it? You let it sit until it's bill paying time. Or, you pay your bills early. Both are "smart" in the traditional sense, but we're not going the traditional route. How about direct depositing that income STRAIGHT to the HELOC?

So, for simplicity sake, let's say you get a once a month paycheck for $5k. NOW what you have is a $95k 1st, and a $0 HELOC. If you keep that balance for 3 weeks, and then pay your bills (out of the HELOC) in the last week, you end up with a $100k balance, but you didn't pay interest on the $5k for the 3 weeks.

That's how the system works. Sure, adding principal helps, and will compound the speed of this significantly... But it's not necessary. In my example you can see that I did not put anything to principal, and we had savings. My pea-brain can't figure out the amount, but I guess it's something like $30 for this $100k example. Plus, again... It compounds. As you countinue this your $30 stacks up to pay down that interest faster. (Can the guy with the graphing calculator help add some real numbers to this example?)

That's the basics... But that only saves the $5k for 3 weeks... What if we took this a little further?

You can kick this up a notch by sliding your interest payments further out! I know hardcore savers don't like credit cards, but they have one major bonus... A grace period! That's interest free loans, baby!

So let's take that $100k 1st, put $10k out of our HELOC to it, and we're back to a $90k 1st and a $10k HELOC. We direct deposit our $5k paycheck into the HELOC, and leave it alone. Now, put all your bills on a credit card, and keep them there (interest freeeeeeee) for 30 days, and when next month rolls around, put your next paycheck into the HELOC. Now you have...

A $90k 1st and $5k HELOC = $95k balance for 30 days.
A $90k 1st and $0 HELOC = $90k balance for 30 days.

At the end of this second month, you'll need to use that HELOC to pay back your credit cards (fully; don't want to pay interest on those purchases!)

Hopefully I've demonstrated that Speed Equity and other systems are not about principal paydown, but are about not paying interest by shifting the debt.

[QuadSquadMom]

Just adding my 2 cents here... I'll caveat up front that I'm a MAJOR Dave Ramsey fan!

Dave says don't pay for any of these set ups (either the one with the $3,500 SW or the bi-weekly payment plans) because as some here have stated, it costs NOTHING to simply pay additional on the principal.

You can accomplish the equivalent to the bi-weekly pay plan by simply paying 1 additional payment a year, or 1/12th extra each time you make your monthly payment with the overage ear-tagged to principal. We do this ourselves without any fees whatsoever. The other benefit to this is if we had an emergency and needed to scale back, we are not obligated to anything more than our regular mortgage payment.

Just some thoughts.

[autoxer]

Hopefully I've demonstrated that Speed Equity and other systems are not about principal paydown, but are about not paying interest by shifting the debt.

Sure they do shift interest, but the 'testimonials' are so exaggerated, because their clients are also putting a lot more towards principal. It is very misleading about what you can actually accomplish "with little change to their day-to-day spending habits and without increasing their monthly mortgage payments."

[cptacek]

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. =><=

[willowstudios]

Here's an idea -

Why don't the people who disagree with the MMA programs start a thread about that and the people who like MMA start one too. That way we don't clash - this all seems like a waste of time because there are people who have and people have not used the actual system.

Personally, I'm interested in learning how MMA can *save me money* (the purpose of this forum!). That's what I want to know - if it doesn't work then the whole MMA will crash and go away. At the moment there are to many people using it, so it's worth the time.

I personally believe in the MMA program because I have spent lots of time reading about it and using the Speed Equity software (minus the HELOC for the moment).

So, why not let people like me discuss it without the constant disagreement? I'm a user and I live in America - it's my right to use Speed Equity.

By the way - I'm not selling anything and don't care if anyone uses it.

[cptacek]

Personally, I'm interested in learning how MMA can *save me money* (the purpose of this forum!).

That is why we are trying so hard...I just showed you that it won't save you money. So, now that I showed you that it won't work, and you don't believe me, I'll stop. Go ahead, shift your interest from one to another and end up paying more in interest. That is your choice.

[cptacek]

I personally believe in the MMA program because I have spent lots of time reading about it and using the Speed Equity software (minus the HELOC for the moment).

Oh, and if you *believe* that putting your money under your mattress will earn you money, and you read a bunch of books about how it will, that still doesn't mean that it is true. Sometimes, you have to actually do the math. Which I did. Please tell me where my math is wrong and you will convince me.

[willowstudios]

Look - all I can tell you is that I'm using the program at Speed Equity and it seems to calculate around 18 years off my 30 year mortgage. When I use a mortgage amoritization calculator it ends up being about 14 years.

Why is that? If I could explain it to you we wouldn't be disagreeing! I'm NOT an MMA sales person - I'm a user of the software only.

One thing I can tell you is after reading the book I got from Amazon about the Speed Equity program it made sense to me. What I can't do is condense an entire BOOK into posts on this forum!!!

[rooskers]

cptacek - Basically my Graphing calc is just doing what your spreadsheet did lol. Depending on the difference in the interest rates between the HELOC and the 1st mortgage and other assumptions made you can save some money using these programs. The best scenario I could come up with was around 10 - 15 dollars a month. Of course I did not calculate the cost to refinance or monthly and upfront fees these programs charge you. On another forum I did exactly what you just did and got pretty much the same reply as willowstudios gave you. I give up as far as I am concerned if someone wants to pay someone for telling them through magic they can pay their 30 mortgage with no extra payments in 10, 15, 20 whatever years earlier then I say go for it. I will just trust the old sayings, NO SUCH THING AS A FREE LUNCH and IF IT SOUNDS TO GOOD TO BE TRUE THEN IT PROBABLY IS. Of course I also trust my calculations.

A consumer advocacy group spokeswoman, Carolyn Bond, of the Consumer Law Action Centre in Melbourne, Australia, has written in to comment on these loans. Here's what she has to say about this type of mortgage structure:

I have been tracking the "mortgage accelerator" industry in Australia for over five years, and after examining the programs offered to consumers and representations made, I am convinced that very few -- if any -- consumers save money using a HELOC in this way. In fact, many end up paying more for their mortgage. In almost all cases consumers are led to believe that significant projected savings are due to keeping funds in the mortgage, where they are actually due to the tight budget included in the example or program.

A look at mortgage acceleration plans