All Forum Posts by: Daniel Weed

I wouldn't necessarily call the actual concept a scam.  It technically works in forcing the person to pay off their debts and mortgage faster than not paying extra at all on their mortgage.  I think the people and companies promoting it are either scamming people to be part of an MLM scheme or ignorant of how interest actually works. 

Most of all, I definitely don't think it's as beneficial as they claim it to be. 

 The reason that most people aren't doing either of those methods has been given numerous times in this thread, even by me. We don't want to pay off our mortgage. 

The reason that the heloc transfer method is so popular is because it's associated with MLM schemes and used with misinformation like "amortized interest" to sell bad financial advice to people that don't understand how interest works. 

Nobody says it doesn't work. Most of us are just advising against it as the risk is high for little gain since the strategy promotes putting all of your savings into the mortgage, leaving no emergency fund other than a HELOC which is tied to the equity in the house.

If things go south with one's job, the economy, etc., then it leaves that person with both a mortgage and a heloc pay on. Banks have been known to freeze lines of credit in those instances. Without an actual emergency fund, one could end up losing more than they bargained for. 

At least that's one of my reasons for not doing this. I mean, other than I don't want to get rid of my 3.25% interest rate mortgage. 

I think the biggest reason you find that so many here on bigger pockets still have their mortgage is because the low, fixed-rate mortgage is by far the cheapest debt available to anyone, especially when considering the time value of money. This allows us to maximize leverage and increase profits.  Paying off your mortgage is the safest option, but it does delay investing for years in most cases, which then reduces one's overall investment returns. 

I'm all for using a HELOC to acquire properties, but I would then suggest refinancing that new property with a mortgage to pay off the HELOC.

That isn't what I'm saying at all. The common misconception is that people think they are paying more than the stated interest rate during the first few years because the majority of the payment is going towards interest. I've heard people claim things like 70+% APR because so much of their payment is interest.

A lot of people don't understand that interest is ALWAYS calculated as outstanding principal multiplied by interest rate. 

Sorry for any confusion. 

You can change the values at the top to whatever you want. I just simply kept the HELOC and mortgage the same rates when I uploaded it because some people seem to think HELOCs have magical simple interest and mortgages use "amortized interest" that makes a mortgage frontloaded with interest.

You can plug whatever values into it the top portion you want and it will change the bottom calculations.  The only thing it can't do is calculate for a variable rate or an introductory rate. I haven't figured that part out yet. 

Also, the heloc on my spreadsheet isn't interest only. It doesn't show any minimum payment because you're making your payment each month by the paycheck parking, so no matter what, your payment is covered. At this point it can't account for all assumptions, but I'll keep trying to play with it when I have time to factor in things like intro rates and different draw dates from the LOC.

As for using your HELOC to buy other property later. You can just simply open up a HELOC once you have more equity for that. Or you can open a HELOC right away, use it for the velocity method during its low intro rate if it's lower than your mortgage rate, and then keep it open in case of emergencies until you have the equity to buy another property.

I'll be the one to do that.  

I put together a spreadsheet based off of one I found on vertex42.com that shows the differences between using the velocity banking method, making just your regular payments, and simply putting all of your extra cash directly towards your mortgage principal. I had to alter the one they had there because they originially made some false assumptions which I believe I cleared up in my version.

You can play around with the numbers, interest rates, etc. and you can see which one is the best.  Just make sure you're honest with your numbers!  

That being said, while I BELIEVE it is good to go, I can't be 100% sure, so if you see errors or ways to improve it, let me know.

LOC vs Mortgage spreadsheet

Why would you scream if one more person says "why don't you just put your cashflow toward the principal?"   I don't really see how an amortization schedule would change anything.  Either way, you can take a look at the spreadsheet I linked to in my previous comment to see why I don't think you should scream as putting your cashflow directly towards the principal seems to be almost the same as chunking given all equal interest rates. 
I don't currently have a way to account for an initial lower rate like 2.99%, but I can try to add that to the spreadsheet to help others see how that could benefit them as well.  That would be important to note.

The spreadsheet does account for daily computing like an LOC vs monthly computing like a mortgage as well.
  

I put together a spreadsheet based off of one I found on vertex42.com that shows the differences between using the velocity banking method, making just your regular payments, and simply putting all of your extra cash directly towards your mortgage principal. I had to alter the one they had there because they originially made some false assumptions which I believe I cleared up in my version.

You can play around with the numbers, interest rates, etc. and you can see which one is the best. 

That being said, while I BELIEVE it is good to go, I can't be 100% sure, so if you see errors or ways to improve it, let me know.

LOC vs Mortgage spreadsheet

@Wayne Brooks @Account Closed

I put together a spreadsheet based off of one I found on vertex42.com that shows the differences between using the velocity banking method, making just your regular payments, and simply putting all of your extra cash directly towards your mortgage principal.  I had to alter the one they had there because they made some false assumptions originally, which I believe I cleared up in my version.

You can play around with the numbers, interest rates, etc. and you can see which one is the best.  It's pretty clear that just simply paying your money directly to the mortgage principal would save the most money since the fixed-rate mortgage should have the lower interest rate.  

That being said, while I BELIEVE it is good to go, I can't be 100% sure, so if you see errors, you can let me know. 

LOC vs Mortgage spreadsheet

I did receive it.  I'll take another look and let you know what I think.