I think you misunderstood. The programs I have read about promise to help you pay off your mortgage early without "additional monthly expenses" -- not the same as "without raising your payments".
Of course you have to increase the amount you pay to your mortgage lender to put additional money toward debt reduction. The success of these programs depends upon your having additional discretionary income every month. For example if you have $5000 in monthly income and $4000 in monthly expenses, then you have $1000 in discretionary income.
The program channels your discretionary income into your loan so that you reduce your loan balance faster. The more you contribute to debt reduction, the faster you eliminate your mortgage debt. The program works especially well if you have a lot of revolving debt too. By paying off your credit cards, you will have even more discretionary income available to reduce your loan balance.
The programs work even better if you budget your monthly expenses, find ways to reduce your spending and eliminate wasteful spending habits. The result is even more discretionary income to put toward your debt reduction.
The programs generally promise to pay off your 30 year mortgage in nine to eleven years. I have not seen one advertised to work in four years. Although, four years is possible, but more likely to be achievable if you are starting with a low mortgage balance and a lot of discretionary income to apply to debt reduction.
Instead of paying anywhere from $500 to $4500 to enroll in one of these programs, you can probably achieve the same results by just adding extra money to your monthly mortgage payment. For example, I had 27 years left on my mortgage loan. I played with the amortization schedules and discovered that I could retire my mortgage in just ten years by contributing an additional $800 toward the principal balance each month.
I will achieve the same result as the mortgage elimination programs without paying a program setup fee, purchasing software, without refinancing my primary mortgage and without paying interest on a HELOC, and without financing my lifestyle on credit cards. Of course, if I want to pay off my mortgage any faster, I could always apply more discretionary income to my monthly loan payments.
BTW, I figured out how fast I could pay off my mortage under the "Living Free and Clear" approach. I do not own their software, so I built amortization schedules for my mortgage loan using the as much of the technique that I could detect from a demo of their system. According to my calculations, their program paid off my mortgage loan 4 months faster than my approach.
The reverse compounding is the name some program promoters are giving to the way interest on debt is paid under their programs. The basic technique is to borrow 12 to 24 months of your discretionaly income from your HELOC account and apply that money in a lump sum to your mortgage balance. The idea is that this large payment reduces your loan term so that you "save" quite a few monthly payments over the life of the loan. Some months your living expenses will be lower, so your extra discretionary income pays off the HELOC loan even faster, and therefore, lowers your HELOC interest payment even more
If you compute the difference between the total interest you would pay on your shorter loan term with the total interest you pay on the full amortization schedule, then compare that to the total interest you would pay on your HELOC for the time it takes to complete the mortgage elimination program, you should realize a tremendous savings. In effect, you are borrowing from your HELOC to pay your mortgage, incurring a higher interest rate on your HELOC than you are paying on your mortgage loan. Using a higher interest rate loan to pay off a lower interest rate loan ("reverse interest" works because your HELOC is paid off over a shorter term with the effect that the total interest paid on the HELOC is significantly less than the interest saved on your mortage loan. In a nutshell, that is what I conclude it is all about.
If you have the discretionary income available each month, just apply it to your monthly mortgage payment as additional principal. Have your loan servicing company automatically deduct it from your checking account each month along with your regular loan payment. Use your spreadsheet program to play with amortization schedules to determine how much you would need to contribute to your principal balance each month to achieve the mortgage reduction timetable you want. Not quite as "glitzy" as the debt elimination programs, but something you can do yourself.
One thing to consider is whether it makes sense to pay off loans early. For example, I have a 15 year fixed mortgage on my principal residence that carries a 4.75% fixed rate. I got this no cost, nothing added to the loan rate during a low point in mortgage rates. With the mortgage tax deduction, my rate is effectively around 3.4%. I see little point to paying that off early since I can invest my money and earn more elsewhere.
You are absolutely correct. A couple of years ago, my financial advisor suggested that I sell (or at least cash out refinance) some of my high equity rental properties and invest the proceeds in the stock market. His argument was that my Return on Equity is a lot lower than my potential Return On Investment in the stock market.
I agreed with the concept, but disagreed with the suggestion because it did not support my "survivor retirement plan". A free and clear primary residence increases the cash flow available to pay the significantly increased living costs my wife will have if I pass away first. Even though the mortgage on my primary residence is only 4.5%, and the cash on cash return in my brokerage account is around 10% right now, I am at the point in my life where it makes sense to own my primary residence free and clear.
We are using half of the income each month from the brokerage account to pay down the mortgage loan on the primary residence. I am also using some excess cash flow from the rental properties to pay down mortgage debt. As each new rental property becomes free and clear, cascading debt reduction just increases the rate that the next property is paid off.
A 10-year level term life insurance policy I bought six years ago will be much too expensive to renew when the policy term expires. With the life insurance premium dropping out of our financial plan in four more years, we needed to develop another source of income.
I figure that a free and clear primary residence and about half of my rental properties free and clear should produce enough cash flow to pay whatever living expenses my wife will incur if I pass away before her.
Quote:
On 2007-10-02 22:42, d_random wrote:
Good advice finniganps.
I pay a couple hundred extra on each property every month.d_random,
Why not put all your extra money on one property each month instead of spreading it out over several?
I would apply all my excess cash flow to pay off the property with the lowest loan balance first. Then apply all excess cash flow to the property with the next lowest loan balance.
You need to run your amortization tables to test this, but I believe you will pay off all your properties faster it you attack the mortgage loans one at a time.
We had a mortgage guy show us this. On his version, he said to use a home equity line. Borrow on a monthly basis to pay expenses, and have you normal income applied to you credit line. The effect would pay less interest and pay the loan off early. But he wanted to sell us the program for $3500.00 plus a monthly fee....... PASS
Post by Ieand makes more sense than any I read. My question is who would you get such a loan from or how to contact HOA Program? Is this anything like an open end mortgage?It sounds good to me.
Quote:On 2008-11-09 17:07, anothernewkid wrote:
Great deal, but I was denied because my debt-to-income ratio was too low [ not enough positive income].Your DTI can never be too low. Did you really mean to say that your DTI ratio was too high?
Your DTI ratio increases as your income falls, as your debt service increases, or both. A high DTI ratio is bad. A low DTI ratio means you debt service is low, your income is high, or both.
After years of philosophical discussion of self-evident truths I propose the following (first stated by NewKid, above) as the first truly self-evident proposition (i.e. the truth of which is obvious and incontrovertible if one only knows the definition of the words):
Quote:The infomercial is misleading
Other than that I want to point out that the two big proponents of these "systems" are both one-only posters who have bought the product and want us to know how successful it is (will be) for them.
I also agree with the general theme of those who ask why paying off the mortgage early is necessarily a good idea. New Kids specific situation is a good example of the exception to the rule.
The key phrase was "without raising your payments".
JohnCl
[ Edited by JohnCl on Date 08/27/2006 ]
Basically it works like this. It turns a monthly payment into a bi-weekly payment. This translates into an extra payment at the end of the year.
I think you misunderstood. The programs I have read about promise to help you pay off your mortgage early without "additional monthly expenses" -- not the same as "without raising your payments".
works because your HELOC is paid off over a shorter term with the effect that the total interest paid on the HELOC is significantly less than the interest saved on your mortage loan. In a nutshell, that is what I conclude it is all about.
Of course you have to increase the amount you pay to your mortgage lender to put additional money toward debt reduction. The success of these programs depends upon your having additional discretionary income every month. For example if you have $5000 in monthly income and $4000 in monthly expenses, then you have $1000 in discretionary income.
The program channels your discretionary income into your loan so that you reduce your loan balance faster. The more you contribute to debt reduction, the faster you eliminate your mortgage debt. The program works especially well if you have a lot of revolving debt too. By paying off your credit cards, you will have even more discretionary income available to reduce your loan balance.
The programs work even better if you budget your monthly expenses, find ways to reduce your spending and eliminate wasteful spending habits. The result is even more discretionary income to put toward your debt reduction.
The programs generally promise to pay off your 30 year mortgage in nine to eleven years. I have not seen one advertised to work in four years. Although, four years is possible, but more likely to be achievable if you are starting with a low mortgage balance and a lot of discretionary income to apply to debt reduction.
Instead of paying anywhere from $500 to $4500 to enroll in one of these programs, you can probably achieve the same results by just adding extra money to your monthly mortgage payment. For example, I had 27 years left on my mortgage loan. I played with the amortization schedules and discovered that I could retire my mortgage in just ten years by contributing an additional $800 toward the principal balance each month.
I will achieve the same result as the mortgage elimination programs without paying a program setup fee, purchasing software, without refinancing my primary mortgage and without paying interest on a HELOC, and without financing my lifestyle on credit cards. Of course, if I want to pay off my mortgage any faster, I could always apply more discretionary income to my monthly loan payments.
BTW, I figured out how fast I could pay off my mortage under the "Living Free and Clear" approach. I do not own their software, so I built amortization schedules for my mortgage loan using the as much of the technique that I could detect from a demo of their system. According to my calculations, their program paid off my mortgage loan 4 months faster than my approach.
The reverse compounding is the name some program promoters are giving to the way interest on debt is paid under their programs. The basic technique is to borrow 12 to 24 months of your discretionaly income from your HELOC account and apply that money in a lump sum to your mortgage balance. The idea is that this large payment reduces your loan term so that you "save" quite a few monthly payments over the life of the loan. Some months your living expenses will be lower, so your extra discretionary income pays off the HELOC loan even faster, and therefore, lowers your HELOC interest payment even more
If you compute the difference between the total interest you would pay on your shorter loan term with the total interest you pay on the full amortization schedule, then compare that to the total interest you would pay on your HELOC for the time it takes to complete the mortgage elimination program, you should realize a tremendous savings. In effect, you are borrowing from your HELOC to pay your mortgage, incurring a higher interest rate on your HELOC than you are paying on your mortgage loan. Using a higher interest rate loan to pay off a lower interest rate loan ("reverse interest"
If you have the discretionary income available each month, just apply it to your monthly mortgage payment as additional principal. Have your loan servicing company automatically deduct it from your checking account each month along with your regular loan payment. Use your spreadsheet program to play with amortization schedules to determine how much you would need to contribute to your principal balance each month to achieve the mortgage reduction timetable you want. Not quite as "glitzy" as the debt elimination programs, but something you can do yourself.
One thing to consider is whether it makes sense to pay off loans early. For example, I have a 15 year fixed mortgage on my principal residence that carries a 4.75% fixed rate. I got this no cost, nothing added to the loan rate during a low point in mortgage rates. With the mortgage tax deduction, my rate is effectively around 3.4%. I see little point to paying that off early since I can invest my money and earn more elsewhere.
finniganps,
You are absolutely correct. A couple of years ago, my financial advisor suggested that I sell (or at least cash out refinance) some of my high equity rental properties and invest the proceeds in the stock market. His argument was that my Return on Equity is a lot lower than my potential Return On Investment in the stock market.
I agreed with the concept, but disagreed with the suggestion because it did not support my "survivor retirement plan". A free and clear primary residence increases the cash flow available to pay the significantly increased living costs my wife will have if I pass away first. Even though the mortgage on my primary residence is only 4.5%, and the cash on cash return in my brokerage account is around 10% right now, I am at the point in my life where it makes sense to own my primary residence free and clear.
We are using half of the income each month from the brokerage account to pay down the mortgage loan on the primary residence. I am also using some excess cash flow from the rental properties to pay down mortgage debt. As each new rental property becomes free and clear, cascading debt reduction just increases the rate that the next property is paid off.
A 10-year level term life insurance policy I bought six years ago will be much too expensive to renew when the policy term expires. With the life insurance premium dropping out of our financial plan in four more years, we needed to develop another source of income.
I figure that a free and clear primary residence and about half of my rental properties free and clear should produce enough cash flow to pay whatever living expenses my wife will incur if I pass away before her.
Good advice finniganps.
I pay a couple hundred extra on each property every month.
Quote:
On 2007-10-02 22:42, d_random wrote:
Good advice finniganps.
I pay a couple hundred extra on each property every month.d_random,
Why not put all your extra money on one property each month instead of spreading it out over several?
I would apply all my excess cash flow to pay off the property with the lowest loan balance first. Then apply all excess cash flow to the property with the next lowest loan balance.
You need to run your amortization tables to test this, but I believe you will pay off all your properties faster it you attack the mortgage loans one at a time.
I have a contact you can call. He specailizes in this and actually does seminars with a Financial Planner in Texas and Arizona.
Let me know if you have an interest.
We had a mortgage guy show us this. On his version, he said to use a home equity line. Borrow on a monthly basis to pay expenses, and have you normal income applied to you credit line. The effect would pay less interest and pay the loan off early. But he wanted to sell us the program for $3500.00 plus a monthly fee....... PASS
Post by Ieand makes more sense than any I read. My question is who would you get such a loan from or how to contact HOA Program? Is this anything like an open end mortgage?It sounds good to me.
Quote:On 2008-11-09 17:07, anothernewkid wrote:
Great deal, but I was denied because my debt-to-income ratio was too low [ not enough positive income].Your DTI can never be too low. Did you really mean to say that your DTI ratio was too high?
Your DTI ratio increases as your income falls, as your debt service increases, or both. A high DTI ratio is bad. A low DTI ratio means you debt service is low, your income is high, or both.
A low DTI ratio is good, a high DTI ratio is bad.
Basically it works like this. It turns a monthly payment into a bi-weekly payment. This translates into an extra payment at the end of the year.
After years of philosophical discussion of self-evident truths I propose the following (first stated by NewKid, above) as the first truly self-evident proposition (i.e. the truth of which is obvious and incontrovertible if one only knows the definition of the words):
Quote:The infomercial is misleading
Other than that I want to point out that the two big proponents of these "systems" are both one-only posters who have bought the product and want us to know how successful it is (will be) for them.
I also agree with the general theme of those who ask why paying off the mortgage early is necessarily a good idea. New Kids specific situation is a good example of the exception to the rule.
Some of the financing company that was their strategy just to get your mortgage payoff in due times.