They developed a method to borrow
money at one cost and use it to eliminate a much higher-cost mortgage.
Pure BS. Mortgage loans are the lowest costs loan products. They are a securitized loan which the bank sees as low risk, therefore the risk premium is the lowest on them. HELOCs are subordinate loans to the mortgage, so they have a higher risk premium. In addition, they are callable by the loanee (ie. can be paid instantly and therefore the investor fronting the money for the HELOC has to find another place to put the money). This also contributes to HELOC rates being higher than mortgage rates. If your mortgage rate is higher than an HELOC… refinance!!
The MMA is a classic example of borrowing to make money. It borrows money from a line-of-credit (LOC) at one cost and uses it to pay down a mortgage at a much higher cost. Notice, I did not say rate, I said cost. That is because the rate of the LOC usually will be higher than the rate of the mortgage, but the cost will be the other way around, because the rate of the LOC will be charged for a very short period f time (usually less than three months) whereas the rate of the mortgage typically will be charged hundreds of months.
BS repeated with a twist, forgetting that on prepay, you also cut the carried balance on the mortgage for that month period. No point in carrying the higher rate of an HELOC.
When I tried to explain how the program worked, I just couldn’t do it. She said that if I
don’t understand something and can’t explain it, I shouldn’t do it.
The length of the loan is as important as the rate.
Wrong. If you are using the short duration as a revolving credit, you are actually carrying it for the full duration. It is either prepay the mortgage costing a lower rate over the month interval, use the HELOC to pay/prepay and carry a balance on HELOC until the check comes in or, pay and invest the balance. Duration of comparison on all is the same 1 month window. The HELOC is being used like a revolving line of credit, secured by the property but subordinate to the primary mortgage and any seconds. The HELOC is also a recourse loan.
Good advice.. but not directly presented by the MMA program. ..the software will do it all
While your money is accumulating in a checking or savings account waiting to be sent, it is not working for you. you. At best, it may earn a pittance of interest that falls short of inflation, which means it actually is losing value and, on top of that, you have to pay income taxes on the pittance;
Incorrect. Most checking accounts yield, some quite decently. In addition, the pittance yield is better than 1.5% points over the mortgage in costing you.
We are dealing here with a process similar to arbitrage
Yes, you are arbitraging yourself into more costs. The HELOC has a higher monthly carrying cost than the mortgage. The arbitrage is going the wrong way.
Yes, I think you are missing the fact that it has taken years to perfect the algorithms that are built into the program that tracks the comparative interest balances between the ALOC and the mortgage(s) and then produces action points on specific dates to make payments and maximize the net gain.
More BS. Make is sound like there is a lot of ‘important stuff’ behind it.
I am not going through the rest of that PDF because I am now having problems typing… ROTFLMAO…
