Hello and welcome back old and new. Don’t recuse yourself yet 71tr!
I started this thread because I wanted more discussion on the central theme to MMA. Namely, what I try to specify in message on 1/22 about $7,000, 5,000 and 2,000. Interest cancelation. I’m pretty hooked that there is a sound strategy involved, but not yet an agent of MMA or a user.
For those who want to stay focused with me on this concept, at this juncture I’m not planning to talk about benefits of any software whatever the cost, nor to discuss opportunity cost of whether it is ‘best’ to pay down a loan (typically a mortgage) with our extra $200 (eg) monthly or to invest it in say stock mutual funds, nor to discuss if we should invest that spare cash in a tax deductible vehicle of IRA or 401k. It is not about paying off more expensive loans first. It is not about optimal consequential net asset growth. None of those discussions for those who are truly on board with the intent of this thread.
OK - some other basics to keep us on track. It is not refinancing. Again this does not propose refinancing into any mortgage or any giant heloc. Dispel that thought. Have I got your attention. That is very clear from watching the homeoffice (United First Financial) presentation. A must watch (30-40mins) if you are going to grasp and participate on task.
It does assume that we have some money left at the end of the month. No surprise there. A new or existing relatively small heloc is required; so current position is some equity needed. WHY this heloc thing? THE central point. Only a line of credit (just to be clear for some this is different than a home equity loan) has the facility of the outstanding balance immediately reduced by a posted payment any number of times during the month. The balance will then rise if draws are made, no surprise. Result is a monthly average daily balance which is used to calculate our interest due.
First stage then is draw some cash out from the heloc. (Comments on what we do with that money later). Interest is accruing. Now, for a moment, take us over to our regular checking account in which most of us have our paychecks (direct) deposited. That earns us typically from 0% to 2%. Second stage is make a deposit to your heloc in the amount of your full paycheck. All the days that that money is sitting there, albeit a short time before we need to use a heloc checkwriting feature to send in our car payment or daycare, etc, etc., it has reduced the balance on the heloc and consequently the average daily balance on which the interest is calculated. Please accept for a moment that this amount of interest saved is greater than the interest earned, if any, on our high street checking accounts. If so we have used the lenders money for less their planned cost to us by no change in our spending habits, just a redirection of our money. Or what I can relate to is, we are floating their money from the beginning of the first month and canceling interest due on it during the month as paychecks are deposited. Of course there are a number of in and outs to & from the heloc. Month after month this becomes powerful.
I’m looking for somebody to counter that theory or else I’m going to operate that way very soon. Probably starting without any MMA software, just to see if it fits the family lifestyle.
Obviously then, what’s the point unless we are doing something with this float or with this loan we have got at an interest cost less than it would normally appear should be paid each month (read interest cancelation). The things we could do is invest it in one or two of a number of choices that take monthly contributions (dollar cost averaging). I relate this to investing on margin. OR, to close this loop on this MMA story, we could …wait for it…you know what I’m going to say…yes, that’s it… you’ve got it…come on somebody jump in, I know Jamie would if he was reading this, 71tr you commented you were almost a proponent, christopher w I know you were trying to joke but I’m serious on seeing that people get the theory, that I think I’ve grasped fully, in order to discuss it…here it is…use it to pay extra to principal and save interest by a much larger amount than the heloc with its now partially canceled interest costs us.
So help me on the use of heloc theory. Remember, secondary is how we use the float but a non-sophisticated use would be to accelerate the paydown of primary mortgage. Hence, the MMA claims, which nobody is disputing, that 18 years or more could come off a 30 year note.
Canceled interest means it should not matter that the heloc might be at a higher quoted rate than the primary mortgage.
UFF independent agents sell the $3500 software to help guide best timing and amounts to draw from the heloc and pay to principal.
A self done spreadsheet presumably could guide someone in a similar fashion.
Running an agents analysis will do nothing for comprehending the concept but only to see results of chopping off years and resultant interest saved on mortgage.
First draw from heloc is the $3500 to be sent with application to UFF to get access to training and support of MMA web based program.
Observation - unlikely that selfdone spreadsheet can incorporate as many variables of life’s financial picture that MMA software can and confidently get recommendations on timing.