Heloc to pay off mortgage faster

[Drew Cameron]

I recently came across a new strategy that I don't quite understand and it sounds too good to be true. The principal is simple. Use your heloc to pay your mortgage and funnel all your funds in and out of it like a checking account. The interest updates daily so you can pay down principal balance much faster than on a traditional mortgage. With a decreasing principal balance the payments go down each month as you pay it off. Plus you can get rid of other payments by funneling them into your account as well. Has anyone else heard of this? Or has anyone used this successfully?

[Gary Floring]

Originally posted by @Chris May:

"In any event, paying an extra 10,000 (of cash) towards your mortgage on day 1 decreases total interest paid over the life of the loan by $31,127. Decreases payoff time to 322 months."

This statement may help clarify what is causing he disagreement/misunderstanding/arguement, etc. in this thread. 

It follows that if a lump sum of $10K is paid to the mortgage in the second year, it would decrease the total interest over the life of the loan (for the second time) by another large amount (~$29.5K or thereabouts). If repeated in year three, it would decrease the total interest paid over the life of the loan (for the third time) by another large amount (~$28K or thereabouts). And so on, every year. I think everyone will agree with this pay-down scenario, the numbers of course being approximated.

Here is where the breakdown may be occurring...

Although the mortgage APR is "nominally" in the single digits, proponents of the rapid paydown are using the "ACTUAL" Total Ineterst Percentage (TIP) to base their ROI. In the case of Joshua Smith, his TIP is 67%. But that TIP is over the LIFE of the loan, not the first few years. Since interest is much greater than principle at the beginning of the amortization schedule, the "effective" TIP for that early period is much higher than 67%. Thus, the nominal APR is not used to calculate ROI.

Therefore, the argument is that by paying down the mortgage quickly in the early period of the loan, the savings (in interest never paid, or "skipped") amounts to several tens of thousands of dollars. In this case, almost $90K in interest payments are "skipped" in three years. Compared with the extra principle paid ($10K per year), the ROI is being calculated (assumed) to be greater than 100%, due to the Total Interest Percentage (NOT the APR) in the early years as being in the triple digits.

Please correct this >100% ROI assumption and provide the actual ROI for scenario above.

[Mike V.]

Originally posted by @Joshua S.:

Do any of you pay a tax professional or a mechanic or someone to put in new windows? Do you pay a babysitter, a landscaper, a cleaning service? 

The point you’re missing Is exactly this: youre essentially arguing with the tax professionals, mechanics, baby sitters, etc as you use in your example. The people who you’re debating ARE professionals and make their livings off this ‘math’.

So I would ask you this, if you go to your doctor and he tells you that you have a disease but need treatement, do you google your symptoms and tell your doctor he’s wrong because WebMD says you have something else and refuse the treatment?  That’s essentially what you’re doing here. You don’t get. You’re not getting closer to geting it. And to add insult to injury you’re ignorantly tell the ‘professionals’ they’re wrong. 

[Lane Kawaoka]

I don’t think this is good for real estate investors who are better off investing.

This is good for those doing just stock market.

I built a spreadsheet comparing simple to amortized mortgage if anyone wants.

[Joshua S.]

Originally posted by @Mike V.:

Originally posted by @Joshua S.:

Do any of you pay a tax professional or a mechanic or someone to put in new windows? Do you pay a babysitter, a landscaper, a cleaning service? 

The point you’re missing Is exactly this: youre essentially arguing with the tax professionals, mechanics, baby sitters, etc as you use in your example. The people who you’re debating ARE professionals and make their livings off this ‘math’.

So I would ask you this, if you go to your doctor and he tells you that you have a disease but need treatement, do you google your symptoms and tell your doctor he’s wrong because WebMD says you have something else and refuse the treatment?  That’s essentially what you’re doing here. You don’t get. You’re not getting closer to geting it. And to add insult to injury you’re ignorantly tell the ‘professionals’ they’re wrong. 

Wow, nothing like putting yourself on a pedestal, huh, doctor? LOL I own rental properties, too, and you can trust me: you guys are not the 'doctors' to my 'patient'. I put up two amortization calculators and showed the savings, which no one can dispute aside from saying, "Nuh uh!". Then everyone puts up their own calculations that don't match up with the calculators, but can't explain why or reconcile the results. 

Everyone agrees on how much a HELOC costs - $42/month. But the "better" solution is to forget the HELOC and just put all their discretionary into the mortgage. This will save a lot more money, right? When I ask who is doing that instead of what I'm proposing it gets really quiet even though it's supposedly so much better. I'm sure it's because everyone would rather remain liquid than putting all their discretionary in their mortgage, which it's exactly what I'm proposing a solution for. Crazy, right? Just show me the calculations that match up with the amortization calculator AND prove your point. It should be really easy to come up with since I'm so wrong.

So, here's a revised analogy for you. I go to the doctor and he says I have monkeys flying out of my butt disease, so I get a text book and show him I have a hangnail. Then he yells himself red in the face because he supposedly knows more than I do and he still wants to amputate my ***. I'M THE ONE giving you guys two concrete, independent, unbiased tools that show the savings I'm talking about. You guys are giving me your own calculations that might as well be on a cocktail napkin and refuse to address the points I'm making. Then you treat your own calculations like gospel and treat me like the idiot because I'm willing to trust a calculator from my lender instead of some internet mortgage doctors. :-D

Once again, Just show me the calculations that match up with the amortization calculator AND prove your point. That's a slam dunk, I'm sure one of you can do that easily since I'm so wrong. Show me how the HELOC costs $100,000 and negates your $100,000 savings. Please, because I want to be done with this. :)

[Chris May]

Originally posted by @Gary Floring:

Originally posted by @Chris May:

"In any event, paying an extra 10,000 (of cash) towards your mortgage on day 1 decreases total interest paid over the life of the loan by $31,127. Decreases payoff time to 322 months."

This statement may help clarify what is causing he disagreement/misunderstanding/arguement, etc. in this thread. 

It follows that if a lump sum of $10K is paid to the mortgage in the second year, it would decrease the total interest over the life of the loan (for the second time) by another large amount (~$29.5K or thereabouts). If repeated in year three, it would decrease the total interest paid over the life of the loan (for the third time) by another large amount (~$28K or thereabouts). And so on, every year. I think everyone will agree with this pay-down scenario, the numbers of course being approximated.

Here is where the breakdown may be occurring...

Although the mortgage APR is "nominally" in the single digits, proponents of the rapid paydown are using the "ACTUAL" Total Ineterst Percentage (TIP) to base their ROI. In the case of Joshua Smith, his TIP is 67%. But that TIP is over the LIFE of the loan, not the first few years. Since interest is much greater than principle at the beginning of the amortization schedule, the "effective" TIP for that early period is much higher than 67%. Thus, the nominal APR is not used to calculate ROI.

Therefore, the argument is that by paying down the mortgage quickly in the early period of the loan, the savings (in interest never paid, or "skipped") amounts to several tens of thousands of dollars. In this case, almost $90K in interest payments are "skipped" in three years. Compared with the extra principle paid ($10K per year), the ROI is being calculated (assumed) to be greater than 100%, due to the Total Interest Percentage (NOT the APR) in the early years as being in the triple digits.

Please correct this >100% ROI assumption and provide the actual ROI for scenario above.

Gary - what you outlined isn't a point of contention. The ROI isn't the point. Obviously throwing 10k at the principal brings your total interest way down.

The point of contention is whether using a loan to pay a loan saves anything interest over the life of the loan. It doesn't. Ever. It's mathematically impossible.

The ONLY way to lower your total interest payments on a loan is to pay cash. No exceptions.

[Ryan Jones]

This is comedy gold.  

"but when someone says they are happy to pay $42/month to keep their money working for them full time and maintain liquidity while saving a bunch of money people are just dumbfounded."

You say you don't want to line the pockets of the banksters via bank fees and interest yet you do by paying HELOC interest instead of just paying your extra income directly toward the mortgage principal. You can still have your HELOC and access it in an emergency if you need to, but by foregoing that on a normal basis and instead just putting all of your extra money to directly pay down the mortgage balance, you'll save $42/month. In an emergency, sure you could withdraw $10k all at once which will increase your balance by putting it on the HELOC side, but there's no reason to pay those monthly interest fees in advance.

[Joshua S.]

Originally posted by @Chris May:

Originally posted by @Gary Floring:

Originally posted by @Chris May:

"In any event, paying an extra 10,000 (of cash) towards your mortgage on day 1 decreases total interest paid over the life of the loan by $31,127. Decreases payoff time to 322 months."

This statement may help clarify what is causing he disagreement/misunderstanding/arguement, etc. in this thread. 

It follows that if a lump sum of $10K is paid to the mortgage in the second year, it would decrease the total interest over the life of the loan (for the second time) by another large amount (~$29.5K or thereabouts). If repeated in year three, it would decrease the total interest paid over the life of the loan (for the third time) by another large amount (~$28K or thereabouts). And so on, every year. I think everyone will agree with this pay-down scenario, the numbers of course being approximated.

Here is where the breakdown may be occurring...

Although the mortgage APR is "nominally" in the single digits, proponents of the rapid paydown are using the "ACTUAL" Total Ineterst Percentage (TIP) to base their ROI. In the case of Joshua Smith, his TIP is 67%. But that TIP is over the LIFE of the loan, not the first few years. Since interest is much greater than principle at the beginning of the amortization schedule, the "effective" TIP for that early period is much higher than 67%. Thus, the nominal APR is not used to calculate ROI.

Therefore, the argument is that by paying down the mortgage quickly in the early period of the loan, the savings (in interest never paid, or "skipped") amounts to several tens of thousands of dollars. In this case, almost $90K in interest payments are "skipped" in three years. Compared with the extra principle paid ($10K per year), the ROI is being calculated (assumed) to be greater than 100%, due to the Total Interest Percentage (NOT the APR) in the early years as being in the triple digits.

Please correct this >100% ROI assumption and provide the actual ROI for scenario above.

Gary - what you outlined isn't a point of contention. The ROI isn't the point. Obviously throwing 10k at the principal brings your total interest way down.

The point of contention is whether using a loan to pay a loan saves anything interest over the life of the loan. It doesn't. Ever. It's mathematically impossible.

The ONLY way to lower your total interest payments on a loan is to pay cash. No exceptions.

Chris, here's what I don't get. According to you, rate is the only thing that matters. As a mathematician, do you not understand the idea of total interest cost? If you buy a donut at 7% interest and you buy a car at .9%, which has a higher total interest cost? 

[Chris May]

More comedy gold:

@Joshua S.: "According to you, rate is the only thing that matters. As a mathematician, do you not understand the idea of total interest cost?"

How do you think interest is calculated? Rate and balance are the only parts of that equation. Total interest cost is a function of rate.

[Mike V.]

Since @Joshua S. repeats the same thing over and over I’ll respond on his behalf. 

@Chris May, you don’t understand this easy, simple concept that even my 3 year old gets! You pay your mortgage with a heloc! Duh! Think of all the easy cash you just saved! You pay the heloc fees to set it up, get a higher interest rate on your heloc, then BLAST the whole heloc balances to your mortgage. 

This is how you become rich!!!

Didn’t you know it’s what Warren buffet and Jeff Bezos do? Are you saying you’re smarter than them? 

I can teach everyone this magic trick for only $1000. PM me! 

lol... this is all I read from his posts. 

[Nick Moriwaki]

Originally posted by @Chris May:

@Nick Moriwaki 

Unfortunately, you didn't do the comparison the that all of us have been discussing. You need to compare a mortgage and a HELOC with the exact same payments made to them. 50k at the beginning, 3k payment every month thereafter.

The thing that makes it impossible to intelligently discuss this is that every proponent of this theory has a different concept of why it works. Ironically, very few argue the ONE variant of this theory that actually does save interest (and is what the bankers behind these products are actually selling).

The comparison that you're referring to is not the scenario that me, Josh, and anyone else who is in favor of the strategy are looking at. That is what I meant when I responded to Josh's initial post that the core misunderstanding is the payment strategy behind putting in the chunk payment using the HELOC. As soon as you folks read "pay mortgage with $X payment from HELOC and save money" you immediately jump to the conclusion we are trying to game daily interest or overlooking that the HELOC accrues interest.

I believe we've said/implied multiple times that the strategy requires additional payment. However, I've tried to make it very clear that there is a very distinct difference in paying additional to a mortgage and paying additional to a HELOC. I'm confused as to how people can contest that. All payments and additional payments to the mortgage cannot be recouped without spending time and fees. The HELOC requires financing fees up front, but since it's a revolving line, all money put into it can come back out immediately. This keeps all your options open for other investments/opportunities that everyone keeps saying they would rather do.

If we’re all on board that paying extra reduces total interest paid, why not choose the most convenient/flexible/efficient way to do so? 

[Chris May]

@Nick Moriwaki I appreciate that you're discussing this in good faith. Much appreciated... honestly.

That said, this statement is false:

"All payments and additional payments to the mortgage cannot be recouped without spending time and fees. The HELOC requires financing fees up front, but since it's a revolving line, all money put into it can come back out immediately."

Using your HELOC to pay your mortgage in no way enables you to recoup principal in your residence.

I've understood this whole time what you're trying to get at, but it's simply not a correct understanding of what a HELOC is. Trust me, I completely understand the point you're trying to make. I'm saying it's not true.

If I have a mortgage and a HELOC with zero balance, and I direct all my disposable income to my mortgage, it in no way impacts how much credit I can draw on my HELOC. I can use my HELOC at any time regardless of how much I direct to my mortgage. The full balance is always available.

[Chris May]

Originally posted by @Chris May:

@Nick Moriwaki I appreciate that you're discussing this in good faith. Much appreciated... honestly.

That said, this statement is false:

"All payments and additional payments to the mortgage cannot be recouped without spending time and fees. The HELOC requires financing fees up front, but since it's a revolving line, all money put into it can come back out immediately."

Using your HELOC to pay your mortgage in no way enables you to recoup principal in your residence.

I've understood this whole time what you're trying to get at, but it's simply not a correct understanding of what a HELOC is. Trust me, I completely understand the point you're trying to make. I'm saying it's not true.

If I have a mortgage and a HELOC with zero balance, and I direct all my disposable income to my mortgage, it in no way impacts how much credit I can draw on my HELOC. I can use my HELOC at any time regardless of how much I direct to my mortgage. The full balance is always available.

And let me provide a more nuanced explanation. If you buy a house with a HELOC (never have a mortgage), what you're saying is true. As you pay down the HELOC balance, you are enabling yourself to take another cash draw on the HELOC and redeploy cash elsewhere.

If you use the HELOC to pay a mortgage, there was never a balance on the HELOC to begin with. There's nothing to "unlock" that's any different than just dumping your extra income in a savings account and using it for a second investment in the future.

[Joshua S.]

Originally posted by @Chris May:

More comedy gold:

@Joshua S.: "According to you, rate is the only thing that matters. As a mathematician, do you not understand the idea of total interest cost?"

How do you think interest is calculated? Rate and balance are the only parts of that equation. Total interest cost is a function of rate.

Ok, well, here's a question for you. Forget the rates and the HELOC and all that for a minute. Imagine that there was a company that offered an investment that was 100% ROI, put in $10,000 and get $20,000, you just have to pay $600 commission to do it. I guess you're saying that you wouldn't do it. Nah, of course you would do it, right?

See, you're so hung up on the rate and the idea that you're just swapping one debt for another that you're not looking at totals and end result. I'm putting in $10,000 (that I would eventually have to pay anyway), but because I do it early I get an additional $10,000 on top of it when I get it back - $20,000 total and 100% ROI. This is the calculator talking, it's verified the money is coming back with 100% ROI. The "fee" for doing in this investment early is $600 paid throughout the year. The rest of the money going toward the mortgage was going there eventually, anyway, but by paying a bit extra to do it early, I made it into a 100% ROI and can make $100,000 off of it long term.

Look, I HAVE CONCEDED MULTIPLE TIMES that if you just have the $10,000/year lying around and don't mind it being tied up in the mortgage, then that's better. It's totally free and awesome and you get the 100% ROI without paying additional interest. That's so awesome, brother! I've said that a bunch of times, but I'm pouring it on so you remember this time? But what I'm saying is also true. If you DON'T have the $10,000 lying around and have to scrape it together or DON'T want it permanently tied up in the mortgage and want more flexibility - in other words, if you want another way to do it - then paying a small amount of interest or a "fee" to unlock a 100% ROI investment makes sense. If you can't understand this, I hope no one ever approaches you with a good investment you have to pay a fee or some interest to get into, because you'll just blow it off because there's a cost involved. Sad!

[Chris May]

Originally posted by @Joshua S.:

Originally posted by @Chris May:

More comedy gold:

@Joshua S.: "According to you, rate is the only thing that matters. As a mathematician, do you not understand the idea of total interest cost?"

How do you think interest is calculated? Rate and balance are the only parts of that equation. Total interest cost is a function of rate.

Ok, well, here's a question for you. Forget the rates and the HELOC and all that for a minute. Imagine that there was a company that offered an investment that was 100% ROI, put in $10,000 and get $20,000, you just have to pay $600 commission to do it. I guess you're saying that you wouldn't do it. Nah, of course you would do it, right?

See, you're so hung up on the rate and the idea that you're just swapping one debt for another that you're not looking at totals and end result. I'm putting in $10,000 (that I would eventually have to pay anyway), but because I do it early I get an additional $10,000 on top of it when I get it back - $20,000 total and 100% ROI. This is the calculator talking, it's verified the money is coming back with 100% ROI. The "fee" for doing in this investment early is $600 paid throughout the year. The rest of the money going toward the mortgage was going there eventually, anyway, but by paying a bit extra to do it early, I made it into a 100% ROI and can make $100,000 off of it long term.

Look, I HAVE CONCEDED MULTIPLE TIMES that if you just have the $10,000/year lying around and don't mind it being tied up in the mortgage, then that's better. It's totally free and awesome and you get the 100% ROI without paying additional interest. That's so awesome, brother! I've said that a bunch of times, but I'm pouring it on so you remember this time? But what I'm saying is also true. If you DON'T have the $10,000 lying around and have to scrape it together or DON'T want it permanently tied up in the mortgage and want more flexibility - in other words, if you want another way to do it - then paying a small amount of interest or a "fee" to unlock a 100% ROI investment makes sense. If you can't understand this, I hope no one ever approaches you with a good investment you have to pay a fee or some interest to get into, because you'll just blow it off because there's a cost involved. Sad!

The end result is you saved nothing. You converted a mortgage liability to a HELOC liability. Find a real accountant anywhere on the planet who says otherwise and I'll eat my shoe.

I'm not responding to you anymore. Can lead a horse to water but you can't make him drink.

[Elijah F.]

[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"

[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.

[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.

[Mike Dymski]

@Joshua S. "Yes, the calculations are correct and over the course of the year following that $10,000 payment you'd save about $445 going forward. But where do you account for the savings from the payments you skipped? When I made a $10,000 payment, I canceled $21,000 worth of scheduled interest that will never have a chance to accrue on my loan. And I just showed you on the Bankrate calculator that it's also the case using an unbiased source of info. Are you about to account for that somehow?"

You are correct on both the $445 and the $21,000.

$10,000 invested at 4.5% compounded over 30 years equals the $20k+ in interest savings (or earnings if invested).

Note: A mortgage is a simple interest loan but the compounding effect comes from the extra principal payments.

[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.

[Steven D.]

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.

It really is just comical at this point, but as a final statement. Math and logic don't work so I doubt basic common sense will but worth a shot. This is a website dedicated to real estate with real estate professionals ranging from newbie, amateur, pros, to full out full time millionaires from real estate. People talk of ROIs ranging from possibly 6% - who knows 50%. They literally make a living doing this and tell you that your math is flawed. However, you have this method that people have read returning ROI of 100% that you actually believe works. No one else is doing it even though HELOCs are broadly available. Wonder why people dealing with loans and interest rates everyday don't take advantage of this crazy ROI? Could it be that it actually isn't as advantageous as you make it up to be? Most of us know the answer but something to ponder...

[Mike V.]

@Steven D. didn’t you know that’s why he’s here! To preach the gospel. 

I sincerely believe he’s trolling us. No one is this dense... 

[Joshua S.]

Originally posted by @Steven D.:

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.

It really is just comical at this point, but as a final statement. Math and logic don't work so I doubt basic common sense will but worth a shot. This is a website dedicated to real estate with real estate professionals ranging from newbie, amateur, pros, to full out full time millionaires from real estate. People talk of ROIs ranging from possibly 6% - who knows 50%. They literally make a living doing this and tell you that your math is flawed. However, you have this method that people have read returning ROI of 100% that you actually believe works. No one else is doing it even though HELOCs are broadly available. Wonder why people dealing with loans and interest rates everyday don't take advantage of this crazy ROI? Could it be that it actually isn't as advantageous as you make it up to be? Most of us know the answer but something to ponder...

It's exactly as advantageous as paying extra principal to your mortgage every year with the caveat that you have to pay about the cost of one dinner out per month to do it. Since the savings far outweigh the cost of that one dinner per month (and you can skip one dinner out per month and the strategy is free), it's actually a fantastic investment. No math needed. 

Everyone agrees that paying extra principal is awesome and amazing and saves you thousands on interest, but if you pay $40/month to do it, you're an idiot. Sorry, but that's an impossible statement. Have a good one, you outside the box thinker you. :)

[Chris May]

Originally posted by @Mike V.:

@Steven D. didn’t you know that’s why he’s here! To preach the gospel. 

I sincerely believe he’s trolling us. No one is this dense... 

 This is extremely cynical, but I've actually wondered if he's actually David Dachtera, the guy who was beating the same dead horse when we went through this years ago.

The way they word their arguments is nearly identical. I even remember David saying "we better let Microsoft know Excel is calculating interest wrong" similar to the Bankrate calculator argument from Josh. David also similarly refused to post any detailed spreadsheets showing his math.

David was selling this system as part of his financial literacy seminar. Funny thing is... I think he finally realized he was wrong, but couldn't admit it because his identity was tied to it being true. 

[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.