All Forum Posts by: Brian Cardwell

 I admit that a heloc CAN be used, but I also consistently state that it isn't necessary. You yourself have acknowledged it isn't necessary, and that you might try doing it without using a heloc if you were to pay down your mortgage ahead of schedule in the future.

People like myself and Bill F. don't speak up just because we like to be combative. We do it because we see investors and potential investors being misled with statements like:

• Mortgages are front-loaded and designed to keep you in debt
• Helocs allow you to tackle the debt faster due to differences in the way the interest accrues
• The typical mortgage can be paid down in about 7 years using this strategy (I just explained above why this is an incomplete soundbite)

People use these soundbites to sell courses on this topic that you yourself acknowledge are unnecessary. And unwitting targets shell out money that could be used to better themselves elsewhere. When are you going to come to the light, and start dispelling all the myths that are used to promote this topic rather than defending the dark side?? ;)

I am not interested in selling anything to anyone in this forum. That goes against the policy, right? I  never said take my class, or that I even offer a class. 

And a person CAN pay off a 30 year mortgage in about 7yrs without increasing their income or refinancing. Ya use a simple interest product like a HELOC and make chunks of principle only payments to the mortgage. Believe it, or don't believe it. Its up to you. There are no secrets. It's not new. It works on any amortized loan. I used it on my car loan for example. Others have used it on student loans.

Rather than accusing someone of trying to sell something, Google how the strategy works.  I sat through a 2 day course explaining it.  It can't be learned or fully explained in all the details in a blog post.

Ah, but alas, a quick Google search shows that he IS selling something. Not a surprise there.

@Jeremy Z. HAHAHA great find!!

I've been following his thread for awhile and have gotten used to the practitioners of this strategy trying to explain how this method overcomes the laws of algebra, but now we have a a real live educator in out midst. 

This should be good!

@Richard Saling

Generalized statements claiming a typical mortgage can be paid off in "about 7 years" using this method are misleading. The actual time depends entirely on how much extra money someone can put toward the debt. If a person only has enough monthly income to cover their expenses, this payoff method won't help them much (it may even prolong the payoff a bit). Conversely, someone with a large amount of disposable income could pay it off in 1 or 2 years. And everything in between. The heloc doesn't accelerate payoff - it's the extra money paid toward the debt.

People should be aware of that before starting this method. Better yet, they should use online calculators or spreadsheets to model out how long it will take them to pay off the loan based on the extra amount they anticipate being able to pay toward the debt each month.

That makes sense. I think when I posed the question I was curious if you would stick to using the HELOC due to the ease of knowing how much money is left over after expenses each month. But thinking it through a bit further, that would probably be easy to track either way.

Hope you have a Happy Easter. Cheers!

@Brian Cardwell

I'm not trying to open up another can of worms here... but I have another question and I am genuinely curious to hear your thoughts.

We have established that funneling your funds through a HELOC will cost more* than paying those funds directly to your mortgage. If you were to do this again, would you still funnel your funds through the HELOC, or would you only use the HELOC if you needed access to the money? And if the former, why?

*This assumes the HELOC has a higher rate of interest than the mortgage, as in Brian's example.

@Brian Cardwell  I don't doubt that you paid off your mortgage in 10 years or less, what I am saying and what others are saying is that without a doubt, the reason that you paid your mortgage off early was because you made significant additional payments towards your principle.  You don't need a heloc to make additional payments, in fact by using the heloc in the manner that you suggest actually hurt you and slowed down your progress since you are leaving a balance on the account each month and therefore paying a higher interest.  If you paid off your mortgage in 10 years, its entirely possible that you would have paid it off in 9 yrs 6 months if you had gotten rid of your heloc entirely.  Your heloc COST you money, it is not what helped you.  Making additional payments above and beyond the minimum required is what helped you pay it off faster.  The method I suggest does not involve making additional payments, that is the big difference that you seem unable to comprehend as we have had this exact same conversation numerous times in this thread.  

There are people out there that are smarter than the both of us.  Smart people who work in the finance industry managing billions of dollars worth of assets who's sole job it is to squeek out the smallest percentage gain for their clients.  If there was some super secret trick to pay off a mortgage significantly faster without spending any additional money these smart people would have found it, and would be using it on a daily basis for all of their clients.  The fact that this isn't happening should give you a clue that there is no trick, instead the only 'trick' is you paying more than the minimum towards your mortgage payment each month.  

Lets assume a house with a 1k/month mortgage payment.  The standard scenario this home gets paid off in 30 years.  In my scenario I still only pay 1k/month but due to the way I structure it, I am able to pay it off in 27 years without spending an extra dime each month.  In your method you instead decide to pay 2k/month and pay it off in 10 years.  Of course you are going to pay it off faster because you are spending more money towards the loan.  That isn't a trick.  My method puts the standard amount towards the loan and still manages to pay it off faster, that is the trick.  If you really wanted to you could just as easily make overpayments using my method but most people don't want to make overpayments because it reduces their cashflow to nothing.

Paying more each month isn't some super secret trick.  Every single person knows that the more money you put towards a loan the faster you will pay off that loan.  That's like me saying, "hey guys, I have a trick to cut 30 years off your mortgage....just pay cash!"

@Brian Cardwell

@Brian Cardwell

It works in certain specific circumstances.

There are LOTS of people using tricks to promote/sell it to far too broad of an audience (check out Youtube, for example).

I absolutely disagree with this. If I came to a forum asking about a certain method, and the respondents knew of a better method, I would very much appreciate them speaking up about it. You acknowledged that your example costs MORE than just paying toward the mortgage directly (due to a higher HELOC rate). That's useful information to people considering this option. Much better than, "yeah, it works".

Unfortunately that is incorrect.  Let me ask you this, how much interest does a credit card charge?  If you answered roughly 20% or whatever your rate is you are both correct, and incorrect at the same time.  This is because interest only accrues on any remaining balance after the due date has past.  Therefore if you pay your account in full each billing cycle you will never pay a dime in interest but if you let the balance carry forward each month you pay the full 20%.

Likewise a heloc can be both more expensive, and cheaper depending how you use it.  This method (if set up properly) can theoretically save you some money because the overwhelming majority of the time your heloc is at 0 balance, and therefore is not accumulating any interest.  A mortgage might only be at a 4% rate, but if done properly a heloc at 6% can be cheaper because of the way the interest is calculated.  Helocs only accrue interest during the timeframe that you have drawn against the heloc, and with the velocity strategy you would move ALL of your bills to the 28th of the month so that you only have a draw on your account for a maximum of 3 days out of every month and then you would fully pay off your heloc each month.  If done in this manner, your heloc is only accruing interest on 3 out of 30ish days, so your effective interest rate would be closer to 0.6% and not the full 6%.  If done in this manner it's not difficult to see that a 0.6% interest loan is better than a 4% interest loan.

To illustrate how it works lets say you earn 5k / month.  Typically this means on the first of the month your bank balance spikes to 5k, and over the course of the next 30 days you spend and pay bills as they come due and your bank balance slowly drops with each bill that you pay until the end of the month where your balance is close to 0.  Then the next month begins and you get paid again and your bank balance spikes back up to 5k and the process repeats itself.  

Under the heloc method, you would first contact everyone that you owe money to and change the bill due date to the 28th of the month.  This way your cell phone bill, credit card bill, cable bill, etc are all due on the 28th (changing the due date is different than simply deciding to pay the bill on the 28)   Then you would instead put that initial 5k directly towards paying your mortgage so that you have $0 in the bank.  Throughout the month you are now spending no money since you have no bills to pay, any random expenses such as gas or groceries are put on a credit card which you don't have to pay until the 28th of the following month.  When the 28th of the month does come around, you take a draw of 5k against your heloc to pay off all of your bills, and that money will then stay on your heloc for the next 3 days until the first of the month when you get paid and you use that money to pay off your entire heloc and you rinse and repeat the process.  Doing it this way you turned 5k worth of mortgage debt at 4% interest into 5k worth of heloc debt at essentially 0.6% since you only paid interest for 3 days, therefore saving a few dollars in the process.

While the strategy does theoretically work, it is not without it's many flaws and overall it probably isn't going to be worth it.  It takes a fair amount of work to get the routine set up and change each and every one of your bills such that it's due date is the 28th.  Do you really want to call up your cell phone company and every other company you have a bill with and have them move your bill due date to the latest allowable day of the month which is the 28th?  Even with all of this work it only shaves off roughly 2-3 years from a typical mortgage if I remember my math correct assuming you earn 10k / month (you can find the math earlier in this thread).  This is because since you have to fully pay off the heloc each month (if a balance carries over then you are correct, a 4% mortgage would beat paying the full 6% on a heloc) the amount that you draw on your heloc is limited by your monthly salary.  Most people don't earn anywhere near enough money each month to make the technique worthwhile.  After all, if you could switch a million dollar loan from 4% to 0.6% that would be amazing, but changing 5 or 10k worth of your mortgage into a heloc isn't going to revolutionize your world, especially after accounting for the annual heloc fees, and the hassle of setting it up.  

Instead of spending countless hours reading and learning about the intricacies of this strategy and implementing it, I would suggest putting in one extra hour of month of overtime at your job and pay down your mortgage by that amount and achieve the same overall result of shaving 2-3 years off your term.

In short, the method CAN work, but not well enough to make it worthwhile.