All Forum Posts by: Chris May

 It's a membership but not exclusive or anything.

You just say you want an account and that's it. Also kinda cool cause they save all your paint purchases so you can make sure to get the same grade and finish for touch ups down the road.

 My bad, I shouldn't have gotten this going again. 

If you want to pay off your mortgage early, have at it.

 I hear you. That's why I've avoided the "is it a good investment" debate. The best investment isn't necessarily the one that returns the most. I've been focused on debunking the flawed math behind many of the claims people are throwing around.

Anyway, my previous post was a response to the idea that there's some unbeatable return on paying down your mortgage early--that's simply factually inaccurate. I guess that was really Josh saying that though.

If paying down your mortgage meets your investment goals, have at it. I just think this HELOC method is a puzzlingly nonsensical way to go about it. No real harm done though.

You paid THE TIME VALUE OF MONEY. It's not a fanciful Wall Street concept, it's something everyone on this site should be intelligently weighing. There is a real cost to paying your mortgage early. 

I've avoided the "is it a good investment" debate, and have really just tried to focus on your completely incorrect understanding of compounding interest and time value of money.

But, let me give a real world idea of what a bad investment paying your mortgage early really is:

The markets I operate in average 5-10% appreciation per year. I can put $200k into a $1M property that next year will be worth $1.05. In the first year, my 200k investment returns 50k appreciation, my renter contributes 12.9k equity, and pays my mortgage interest for me. That's a return of 31%! And it only goes up every year thanks to the beauty of compounding.

I want to pay as little towards my mortgage as possible so I can buy as many properties as possible!

I've been in real estate for 5 years (as a side pursuit on evenings and weekends) and have averaged over 80% (not a typo) per year return on my original investment. Plug that into a calculator and see what it looks like. I imagine many of the other folks posting here have similar results. Intelligently deploying these financial concepts is the difference between (you) retiring at 65 with some extra cash in the bank, and me (and others here) retiring before I hit 40.

Simply put, I would be insane to pursue a 4.5% return when 80% returns are everywhere you turn. 4.5% is chump change.

The point of this site seems to have gone right over your and @Brian Cardwell's heads. I imagine @Matthew Olszak and @JD Martin would agree with me here... listen to the podcast... the guests on the show have made MILLIONS leveraging other people's money and intelligently deploying capital. If you think this site is about paying off your mortgage early, you've completely missed the opportunity that real estate presents.

My main frustration with this whole debate is watching someone so willfully shoot themselves in the foot. Come on man! You can be rich! There is a treasure trove of life changing knowledge on this site. Take advantage of it.

1. Absolutely. In fact you're saving a billion infinity percent.

2. Yes. When you pay your mortgage early, the money fairy reimburses you so it actually didn't cost anything at all.

"How To Pwn the Bank" - The Josh Smith Story

There's the Josh I know! Literally saying that paying your mortgage has a return on investment of infinity percent and costs nothing! You've discovered the investing fountain of youth! They need to get you on the next BP podcast, stat!

Or maybe we could do another round? Another 100 posts about basic algebra will be fun.

 Sigh. Obviously paying your mortgage early saves interest, I've never once denied that. I honestly have no idea what point you think I'm unwilling to concede.

Bruh, slow down. When I talk about having to compare against the full 30 year life, I'm talking about your HELOC/early payoff method vs not pre-paying principal at all, and specifically when to recognize the bazillions in savings. You can't recognize it all up front and say you saved a bazillion dollars on day one. I feel like we keep doing this... you're presenting like 10 different scenarios in the same breath, and then missing the distinction between each one... and then thinking you're catching me in some gotcha when you're actually just missing the point I'm making.

When comparing two payoff strategies that end on the same date, you compare the savings side by side, over the life of those loans, not the full 360 months.

As for the rest about Hondas and whatnot, I have no idea what point you're making. I'm doing just fine with my real estate investments though because I don't chase $7 and instead spend my time doing the real financial analysis to use leverage/debt to maximum advantage. But thanks. The more people who waste their time with this stuff, the less competition I have.

Not misunderstanding. That's my whole point, is that the HELOC is irrelevant. The original post was about massive savings from using the HELOC.

 I disagree with your premise, but I'll play along. There's no reason you couldn't pay 2k towards the mortgage at the start of month 1. I would hope nobody's monthly budget is that unpredictable. But anyways...

Month 2

1. Mortgage starting balance: 197,711.84 (includes principal payment with regular monthly payment in month 1). Interest: $659.04.
2. Put 5k towards HELOC on day 1. Draw back up to 6k. ADB = (3,027.08 + 6027.08) / 2 = 4527.08. HELOC interest = $18.86. Mortgage interest on $189,726.24: $632.42. Total interest: $651.10.

We've discussed this before. The formula for how much you save is entirely dependent on the rate spread and the amount to which you can game the ADB formula. So your interest savings is $642 over the 7 years it takes you to pay off the mortgage, but you still have a HELOC balance once your mortgage is paid off that continues accruing interest for 1-5 months that eats into that savings.

Doing imprecise math, you'd pay another $50-100 on the remaining HELOC balance after mortgage is paid off, which takes you down to ~$600 savings. You saved $7 per month. An extra beer a month. The two HELOCs I've had came with a $150 per year fee. That would put you in the hole.

A lot of effort for chump change. And a far cry from the tens to hundreds of thousands of dollars I always see thrown around in discussions. That's actually the real claim I take issue with--"I move xx years ahead on the amortization table and save a bazillion dollars!". This is also one of the more extreme real world examples there will be (2k per month principal payment with $1500 ADB vs ending balance spread).

PS I'd need to model out the whole life of the loan to get the exact difference between 1 & 2, but the numbers above are very very close.