|
Below is a simplified illustration of
what one might expect to experience with an M.M.A. program after 6 months of
useage.
We assume a 10%
interest rate on the line of credit to simplify calcuation. We
then compare the results with the results of just making extra payments
every month out of your pocket.
Traditional 30 year amortized loan
John & Mary
$200,000 Principal loan amount – traditional closed end
6% Loan Interest
$1199 Monthly Payment
$431,677 Total Repayment
$231,677 Total Interest
Compare A with B
A) M.M.A./Heloc
@ 10% open end line of credit of $50,000 making extra payments of $6000 in
first 6 months.
Standard
Assumptions
$5000/Mo income
$4000/mo living
expenses (mortgage ($1199), car loan, utilities, phone, gas, credit cards,
food etc etc)
$1000/mo discretionary income
Month 1
-4000 living expenses
-3500
cost of MMA software
-7500 total borrowed from heloc
5000
deposit from income check
-2500 new balance owed
$20.83
interest charges for Month 1 – ($2500x10%/12)
Month 2
-2500 owed carry over from Month 1
-2000 pay down mortgage principal – extra payment
-4000
living expenses
-8500 total
borrowed Month 2
5000
deposit from income check
-3500 new balance owed
$29.17
Heloc interest charges for Month 2
Month 3
-3500 owed carry over from Month 2
-4000
living expenses
-7500 total
owed Month 3
5000
deposit from income check
-2500 new balance owed
$20.83
Heloc interest charges for Month 3
Month 4
-2500 owed carry over from Month 3
-1000 pay down mortgage principal-extra payment
-4000
living expenses
-7500 total owed Month 2
5000
deposit from income check
-2500 new balance owed
$20.83
bank interest charges for Month 4
Month 5
-2500 owed carry over from Month 4
-1000 pay down mortgage principal
-4000
living expenses
-7500 total owed Month 5
5000 deposit
from income check
-2500 new balance owed
$20.83
bank interest charges for Month 5
Month 6
-2500 owed carry over from Month 5
-4000 living expenses
-2000
pay down mortgage principal
-8500 total owed Month 2
5,000
deposit from income check
-3500 new balance owed
$29.17
bank interest charges for Month 6
|
6 Month Summary
Mortgage Principal
Paydown with extra payments
Principal now owed on
30 yr. loan (including reduction
experienced
from standard payment of $1199/mo)
Total borrowed
money from HELOC
Total owed to HELOC at month 6
Total cost to borrow
bank’s money
Approx. interest saved
on mortgage contract
Note:
mortgage calculator not used, therefore some numbers are
approximations. |
$6,000
$193,000 (approx)
$33,500
$3,500
$141.66
$22,000 (approx) |
B) No Heloc - straight extra payments of
$1000 every month
$200,000 Principal loan amount – traditional closed end
6% Loan Interest
$1199 Monthly Payment
| No. |
Beg Bal |
Interest |
Prin |
Extra Pymt |
Ending Bal |
| 1 |
200,000.00 |
1,000.00 |
(199.10) |
(1,000.00) |
198,800.90 |
| 2 |
198,800.90 |
994.00 |
(205.10) |
(1,000.00) |
197,595.80 |
| 3 |
197,595.80 |
987.98 |
(211.12) |
(1,000.00) |
196,384.68 |
| 4 |
196,384.68 |
981.92 |
(217.18) |
(1,000.00) |
195,167.50 |
| 5 |
195,167.50 |
975.84 |
(223.26) |
(1,000.00) |
193,944.23 |
| 6 |
193,944.23 |
969.72 |
(229.38) |
(1,000.00) |
192,714.85 |
Comparison between
A) M.M.A. with Heloc and B) straight payments
- Both have the
same ending balance owed after 6 months
- Heloc has an
additional $3500 owed
- Out of pocket
expense
- Interest
cancellation with either method, approx. $22,000
Conclusion
M.M.A./Heloc pays
down mortgage principal as quickly as paying out of pocket, but
only costs the homeowner a fraction of the expense. The
additional $3500 will be gradually paid down each month depending
on M.M.A. recommendations from algorhythms, especially if more
discretionary income is applied.
Note: You are using the bank's money to pay your debts. There
is no refinancing of the original loan. You are using a separate
line of credit from another source to pay down the contract. It becomes obvious to the user/client that the more
discretionary income they have, the faster this will work. So
typically people start spending less each month, leave their money in the
checkbook longer, and experience more rapid pay down. For example,
after several months of paying the $4000 month in expenses, they might
have reduced
spending habits by $500 per month, and then, perhaps some other debt is paid off
in the process also, giving them an additional $300 discretionary money.
Now instead of having a monthly nut of $4000 to pay, they would have only
$3200 to cover. This would give $1800 monthly discretionalry income
which would allow more rapid interest cancellation following the
suggestions of the MMA software.
The downside to this is that one must be
disciplined. You cannot take your $50,000 line of credit (or much
more in many instances - $100...$200, etc.) and go on a spending spree.
That will destroy the whole concept, and the MMA will not have helped you.
If you follow as closely as possible the suggestions from the program, you
will be successful at early payoff, and large savings in interest.
In other links to this page, we talk
about retirement financing and can show how you can set yourself up with
an IUL for example, and take money out of the HELOC to fund the IUL, set
yourself up with a retirement package that will give you a sizeable
retirement income that is tax free. And you can do all this and
still pay down the mortgage in 12 years or thereabouts.
The link below for Video would be helpful in
explaining the program.
Lee Zebold, BSc, LX
Los Angeles
(213) 977-0880
lzebold@sbcglobal.net
Debt
Elimination Home Contact
Us Senior Opportunity
Retirement Planning
ARTICLE How To Have Rapid
Mortgage Paydown Mortgage
Reduction
VIDEO
How MMA Works Sample 2 |
