NoSoup

Although I didn't spend the time to review the 18 minute clip, I can say that for as long as I've been in the industry this "system" has been around.

Unless magical money is coming from somewhere, it's better long term simply to pay down your mortage with out of pocket money. Taking out a lump sum on a second mortgage nets you exactly nothing - well actually, that's not completely true. You'll still owe the same amount but you'll be paying a higher interest rate, so it actually nets you down.

For some, this "system" might work - but if it does, it's only because it causes the user of the system to discipine themselves and pay extra on their mortage however often the particular "system" requires.

You'd be better off paying directly out of pocket any extra you can as soon as you can. Over the course of the loan, it'll save* you more than any "system" involving the use of borrowing money at a higher interest rate.

*I say save, but in essentially your house is simply costing you closer to the amount you agreed to purchase it for. A minor difference, but in my opinion a very important one.
-----Added 11/8/2008 at 09 : 23 : 24-----
So here's the scoop - and the math to back it up.


***EDIT****

I watched the video, and the figures they use are ridiculous. There are so many problems with their calculations it's unbelieveable.

Case in point - the video assumes that both individual are paid on the 1st of the month, once a month (calculated from the average daily balance of their credit line)

Additionally, it also assumes that they spend exactly $0 of their discretionary income on anything non home related.

Even providing both of these insane assumptions are true, here's the math that shatters the "system."

So, here's what we assume -

For all scenarios, $5,000/month net income
$200,000 in debt (only mortgage debt)
"Household expenses" of $4,000
Discretionary Income of $1,000


Mortgage specifics -
$200,000 is at 6.0% fixed for 30 years

Home Equity Line of Credit is at 8.6% Variable - for the example, we'll say it's fixed, but know that it will more than likely substantially increase over the next 30 years - and the vast majority of HELOCs have an annual fee ranging from $75.00 - $200 a year.

Scenario 1 - you pay minimum amount on your mortage for 30 years

$200,000 Principal
$231,676 Interest

$431,676 Total Repayed

Scenario 2 -

You follow that garbage system on the website.

It doesn't specify what the average daily balance over the life of the loan for the HELOC is, so I'll utilize the specific interest payed over the life of the loan that it did state. Supposedly the system uses sophisticated algorithams to determine the optimal time to "balance" your account. Riiiiiight.

According to the video, you'll pay $71,000 in Interest that has accrued on both the Home Equity Line of Credit and 1st mortgage combined after following the system.

To summarize: Scenario 2

$200,000 Principal
$71,005 Interest

$271,005 Total Repaid.

Scenario 3: Real Life

The ultra mega secret system basically assumes that since you aren't using any of your $1000.00 discretionary pay, you're putting it towards your mortgage. I'll assume the same.

$200,000 Principal
$67,384.23 Interest

$267,384.23 Total Repaid (winner!)

So... to sum it up, if you're borrowing at a higher interest rate to pay off a lower interest rate with the goal of saving money long term, you're an idiot.

These are the most basic assumptions, with everything tipped towards having the maximum impact shown in "the system's" *savings*

Still, common sense prevails.

Of course, once you consider adding the complexities of using "the system" - like not getting both yours and your spouse's total monthly income directly deposited into your account the 1st of the month, or taking into account the actual cost they charge you for "the system" - or taking into account the fees associated with having a home equity line of credit - not just the annual fee, but the nearly certain increase of a variable rate, it simply would add to amount of money you net using common sense rather than "the system"

What blows my mind even further is that it suggests the use of a personal line of credit instead of a HELOC. Um... Personal line of credit interst rates are substantially higher than HELOC rates - and there is no tax deductibilty, like there is with a HELOC.

To all homeowners out there - there isn't a magic answer. Pay as much as you can towards your mortgage as often as you can, and it'll be paid down faster and you'll pay less in interest overall. Unless you're able to borrow some money at a lower interest rate (take into account tax considerations) it's a bad idea.

And no offense mortgage007, but I'm ashamed that you've been in the industry for 30 years and buy into this garbage.

Also, I just googled the price - wowzers! What a scam!

From http://www.thesimpledollar.com/2007/...ome-borrowers/

Not only are you charged ridiculous fee, you get to pay interest on it to "accelerate your payments"

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