Payoff Mortgage in 1/3 the time without doing anything different?

[Raybyrnes]

fat_lazy_union

That’s the way I see it. THis strategy, as I see had more merit before electronic accounts. Now if you are computer literate you should be earning 5% or better by using a sweep account into a high yield money market account or 4% or better in your checking account. With these accounts your cash is never really dormant. Whether or not the immediate payment toward the MOrtgage of 6% or higher can offset by fees etc I don’t know. Additionally If all of my purchases are now going against my line of credit how does the tx deduciton play into that.

Again this is hurt by the fact that right now I use a variety of 0% credit card offers in conjunction with points, miles bonuses etc. SO this diminishes many of the potential advantages.

But here is the wild card. I study this stuff and pay attention to it. I proactively look for credit card offers, car loans, leasing rates etc. What if I were the average JOE who doesn’t do this. Could someone like this benefit from a well contructed cash mangement/ mmortgage management plan that had him paying down his debt and seeing the light at the end of the tunnel by paying down his mortage. Yeah, I could se some value to that.

Whether this is the most opportunistic way, that is the unknown. I would like to see some data or hear from someone using the system.

[ucodegen]

Dumb question, and mainly a reflection of my own pea-sized brain at this point.
Honest questions are not dumb.

1) your regular mortgage is compounded monthly
Both are compounded at least monthly.

2) your heloc would be compounded daily..Coupled with a direct deposit of paychecks say at bi-weekly intervals, the running balance on the heloc would be lower such that despite the higher interest rate and higher frequency of compounding,..

It would seem so, but unfortunately there is a fly in the ointment. What if I have no HELOC and just pay the mortgage like normal. Since I am not carrying any balance for any period on the HELOC… I get no charges on the HELOC. Compare that with a 15 day charge at X% for 1 mortgage payment and 15 day charge at X% for 1/2 mortgage payment… The non HELOC wins.

This discussion was originally about the software so lets quickly deal with that. The methodology for making the payment structures I am about to mention is actually quite simple. The problem with the software is that, because of its cost, it puts you at least a month behind on payments (charged to HELOC). Effectively it charges you for something you can do with pen and paper. If the cost of the software was under $100, it might be worth the convenience. Unfortunately the cost is something like $3500(At last I heard/saw mentioned). The other problem may be that this application expects you to use an HELOC from a certain supplier. I saw mentioned of a peak HELOC rate mentioned earlier of 21% (search down for 21, it is the 15th paragraph). This is a very high rate for a credit card (unsecured credit). For a HELOC or mortgage, which is a secured loan, it is downright usurious.

Now for the underlying technique:
I am not going to call this a program or anything else because people have been using this technique for years to reduce debt costs. It is based upon using cheaper money to pay off more expensive money. It is much like shifting balances to cards with cheaper rates. The only difference in this case is that you have added an HELOC as a credit option. Right off the bat, this requires discipline, and no software package will help you with that!! I am not going to address using HELOC money for investment instead of buying on margin right now (complicates the discussion)

Some basic facts:
1) Credit card debt is more expensive (other than the teaser rates) than HELOC or mortgage debt (cost of this money is generally the highest).
2) HELOC and mortgage interest is deductible unless you are taking large capital gains or have other deductions that push you into AMT (Alternate Minimum Tax).
3) The fact that HELOC and mortgage interest is deductible reduces their effective rate considerably. If a mortgage rate is 6% and you are in a 33% marginal tax rate bracket, the effect rate on the mortgage is 4% with deductions taken into account. (Marginal tax rate is % of each additional dollar that goes to taxes. This is not calculated by dividing total taxes by taxable income. You use the tax formulas at the end of 540 and 1040 and add up the percentages that are shown until you are in your income bracket.)

The basic method breaks down into sorting all of your debts(including credit cards) by their tax adjusted interest rates. Allocate out of your monthly salary, the money to pay the minimum amount on each debt. Now, with the remainder, commit the balance of the funds to pay down the debt with the highest tax adjusted interest rate (point of why we sorted them). Normally the cheapest credit card is used to pay for that months expenses (some credit cards give 1 one month interest free grace period on charges accrued during the month). This is where the HELOC becomes useful, and discipline is required. Because HELOCs have a lower effective tax adjusted interest rate than just about any credit card, you can use HELOC money to pay down the cards and effectively use cheaper money. The discipline is in not racking up charges on the card afterwards and keeping your net expenditure, include debt service, lower than your income. You don’t want the balance on the HELOC to grow. Some HELOCs allow you to write a check/use a debit card against them directly, so they can be used almost like a credit card. The other advantage of the HELOC is that it can absorb the shock of a big expenditure better than a credit card. This also allows you to commit more of your cash to paying off the debt instead of having it sit in a checking account.

When it comes to investing, it makes the whole thing above ‘topsy turvy’. Debt allows you to have a higher return on assets (note that I did not say equity). You are using someone elses money to get a return on your investing activity. The only problem is that it introduces risk and on the downstroke (if your return is less than debt interest rate or negative return) it can really bite you. Therefore, in a good market, debt can be used to increase your returns. In a bad market.. be careful..

I hope I didn’t complicate things… and that it is all clearer than mud.

[ucodegen]

Dumb question, and mainly a reflection of my own pea-sized brain at this point.
Honest questions are not dumb.

1) your regular mortgage is compounded monthly
Both are compounded at least monthly.

2) your heloc would be compounded daily..Coupled with a direct deposit of paychecks say at bi-weekly intervals, the running balance on the heloc would be lower such that despite the higher interest rate and higher frequency of compounding,..

It would seem so, but unfortunately there is a fly in the ointment. What if I have no HELOC and just pay the mortgage like normal. Since I am not carrying any balance for any period on the HELOC… I get no charges on the HELOC. Compare that with a 15 day charge at X% for 1 mortgage payment and 15 day charge at X% for 1/2 mortgage payment… The non HELOC wins.

This discussion was originally about the software so lets quickly deal with that. The methodology for making the payment structures I am about to mention is actually quite simple. The problem with the software is that, because of its cost, it puts you at least a month behind on payments (charged to HELOC). Effectively it charges you for something you can do with pen and paper. If the cost of the software was under $100, it might be worth the convenience. Unfortunately the cost is something like $3500(At last I heard/saw mentioned). The other problem may be that this application expects you to use an HELOC from a certain supplier. I saw mentioned of a peak HELOC rate mentioned earlier of 21% (search down for 21, it is the 15th paragraph). This is a very high rate for a credit card (unsecured credit). For a HELOC or mortgage, which is a secured loan, it is downright usurious.

Now for the underlying technique:
I am not going to call this a program or anything else because people have been using this technique for years to reduce debt costs. It is based upon using cheaper money to pay off more expensive money. It is much like shifting balances to cards with cheaper rates. The only difference in this case is that you have added an HELOC as a credit option. Right off the bat, this requires discipline, and no software package will help you with that!! I am not going to address using HELOC money for investment instead of buying on margin right now (complicates the discussion)

Some basic facts:
1) Credit card debt is more expensive (other than the teaser rates) than HELOC or mortgage debt (cost of this money is generally the highest).
2) HELOC and mortgage interest is deductible unless you are taking large capital gains or have other deductions that push you into AMT (Alternate Minimum Tax).
3) The fact that HELOC and mortgage interest is deductible reduces their effective rate considerably. If a mortgage rate is 6% and you are in a 33% marginal tax rate bracket, the effect rate on the mortgage is 4% with deductions taken into account. (Marginal tax rate is % of each additional dollar that goes to taxes. This is not calculated by dividing total taxes by taxable income. You use the tax formulas at the end of 540 and 1040 and add up the percentages that are shown until you are in your income bracket.)

The basic method breaks down into sorting all of your debts(including credit cards) by their tax adjusted interest rates. Allocate out of your monthly salary, the money to pay the minimum amount on each debt. Now, with the remainder, commit the balance of the funds to pay down the debt with the highest tax adjusted interest rate (point of why we sorted them). Normally the cheapest credit card is used to pay for that months expenses (some credit cards give 1 one month interest free grace period on charges accrued during the month). This is where the HELOC becomes useful, and discipline is required. Because HELOCs have a lower effective tax adjusted interest rate than just about any credit card, you can use HELOC money to pay down the cards and effectively use cheaper money. The discipline is in not racking up charges on the card afterwards and keeping your net expenditure, include debt service, lower than your income. You don’t want the balance on the HELOC to grow. Some HELOCs allow you to write a check/use a debit card against them directly, so they can be used almost like a credit card. The other advantage of the HELOC is that it can absorb the shock of a big expenditure better than a credit card. This also allows you to commit more of your cash to paying off the debt instead of having it sit in a checking account.

When it comes to investing, it makes the whole thing above ‘topsy turvy’. Debt allows you to have a higher return on assets (note that I did not say equity). You are using someone elses money to get a return on your investing activity. The only problem is that it introduces risk and on the downstroke (if your return is less than debt interest rate or negative return) it can really bite you. Therefore, in a good market, debt can be used to increase your returns. In a bad market.. be careful..

I hope I didn’t complicate things… and that it is all clearer than mud.

[ucodegen]

Dumb question, and mainly a reflection of my own pea-sized brain at this point.
Honest questions are not dumb.

1) your regular mortgage is compounded monthly
Both are compounded at least monthly.

2) your heloc would be compounded daily..Coupled with a direct deposit of paychecks say at bi-weekly intervals, the running balance on the heloc would be lower such that despite the higher interest rate and higher frequency of compounding,..

It would seem so, but unfortunately there is a fly in the ointment. What if I have no HELOC and just pay the mortgage like normal. Since I am not carrying any balance for any period on the HELOC… I get no charges on the HELOC. Compare that with a 15 day charge at X% for 1 mortgage payment and 15 day charge at X% for 1/2 mortgage payment… The non HELOC wins.

This discussion was originally about the software so lets quickly deal with that. The methodology for making the payment structures I am about to mention is actually quite simple. The problem with the software is that, because of its cost, it puts you at least a month behind on payments (charged to HELOC). Effectively it charges you for something you can do with pen and paper. If the cost of the software was under $100, it might be worth the convenience. Unfortunately the cost is something like $3500(At last I heard/saw mentioned). The other problem may be that this application expects you to use an HELOC from a certain supplier. I saw mentioned of a peak HELOC rate mentioned earlier of 21% (search down for 21, it is the 15th paragraph). This is a very high rate for a credit card (unsecured credit). For a HELOC or mortgage, which is a secured loan, it is downright usurious.

Now for the underlying technique:
I am not going to call this a program or anything else because people have been using this technique for years to reduce debt costs. It is based upon using cheaper money to pay off more expensive money. It is much like shifting balances to cards with cheaper rates. The only difference in this case is that you have added an HELOC as a credit option. Right off the bat, this requires discipline, and no software package will help you with that!! I am not going to address using HELOC money for investment instead of buying on margin right now (complicates the discussion)

Some basic facts:
1) Credit card debt is more expensive (other than the teaser rates) than HELOC or mortgage debt (cost of this money is generally the highest).
2) HELOC and mortgage interest is deductible unless you are taking large capital gains or have other deductions that push you into AMT (Alternate Minimum Tax).
3) The fact that HELOC and mortgage interest is deductible reduces their effective rate considerably. If a mortgage rate is 6% and you are in a 33% marginal tax rate bracket, the effect rate on the mortgage is 4% with deductions taken into account. (Marginal tax rate is % of each additional dollar that goes to taxes. This is not calculated by dividing total taxes by taxable income. You use the tax formulas at the end of 540 and 1040 and add up the percentages that are shown until you are in your income bracket.)

The basic method breaks down into sorting all of your debts(including credit cards) by their tax adjusted interest rates. Allocate out of your monthly salary, the money to pay the minimum amount on each debt. Now, with the remainder, commit the balance of the funds to pay down the debt with the highest tax adjusted interest rate (point of why we sorted them). Normally the cheapest credit card is used to pay for that months expenses (some credit cards give 1 one month interest free grace period on charges accrued during the month). This is where the HELOC becomes useful, and discipline is required. Because HELOCs have a lower effective tax adjusted interest rate than just about any credit card, you can use HELOC money to pay down the cards and effectively use cheaper money. The discipline is in not racking up charges on the card afterwards and keeping your net expenditure, include debt service, lower than your income. You don’t want the balance on the HELOC to grow. Some HELOCs allow you to write a check/use a debit card against them directly, so they can be used almost like a credit card. The other advantage of the HELOC is that it can absorb the shock of a big expenditure better than a credit card. This also allows you to commit more of your cash to paying off the debt instead of having it sit in a checking account.

When it comes to investing, it makes the whole thing above ‘topsy turvy’. Debt allows you to have a higher return on assets (note that I did not say equity). You are using someone elses money to get a return on your investing activity. The only problem is that it introduces risk and on the downstroke (if your return is less than debt interest rate or negative return) it can really bite you. Therefore, in a good market, debt can be used to increase your returns. In a bad market.. be careful..

I hope I didn’t complicate things… and that it is all clearer than mud.

[ucodegen]

Dumb question, and mainly a reflection of my own pea-sized brain at this point.
Honest questions are not dumb.

1) your regular mortgage is compounded monthly
Both are compounded at least monthly.

2) your heloc would be compounded daily..Coupled with a direct deposit of paychecks say at bi-weekly intervals, the running balance on the heloc would be lower such that despite the higher interest rate and higher frequency of compounding,..

It would seem so, but unfortunately there is a fly in the ointment. What if I have no HELOC and just pay the mortgage like normal. Since I am not carrying any balance for any period on the HELOC… I get no charges on the HELOC. Compare that with a 15 day charge at X% for 1 mortgage payment and 15 day charge at X% for 1/2 mortgage payment… The non HELOC wins.

This discussion was originally about the software so lets quickly deal with that. The methodology for making the payment structures I am about to mention is actually quite simple. The problem with the software is that, because of its cost, it puts you at least a month behind on payments (charged to HELOC). Effectively it charges you for something you can do with pen and paper. If the cost of the software was under $100, it might be worth the convenience. Unfortunately the cost is something like $3500(At last I heard/saw mentioned). The other problem may be that this application expects you to use an HELOC from a certain supplier. I saw mentioned of a peak HELOC rate mentioned earlier of 21% (search down for 21, it is the 15th paragraph). This is a very high rate for a credit card (unsecured credit). For a HELOC or mortgage, which is a secured loan, it is downright usurious.

Now for the underlying technique:
I am not going to call this a program or anything else because people have been using this technique for years to reduce debt costs. It is based upon using cheaper money to pay off more expensive money. It is much like shifting balances to cards with cheaper rates. The only difference in this case is that you have added an HELOC as a credit option. Right off the bat, this requires discipline, and no software package will help you with that!! I am not going to address using HELOC money for investment instead of buying on margin right now (complicates the discussion)

Some basic facts:
1) Credit card debt is more expensive (other than the teaser rates) than HELOC or mortgage debt (cost of this money is generally the highest).
2) HELOC and mortgage interest is deductible unless you are taking large capital gains or have other deductions that push you into AMT (Alternate Minimum Tax).
3) The fact that HELOC and mortgage interest is deductible reduces their effective rate considerably. If a mortgage rate is 6% and you are in a 33% marginal tax rate bracket, the effect rate on the mortgage is 4% with deductions taken into account. (Marginal tax rate is % of each additional dollar that goes to taxes. This is not calculated by dividing total taxes by taxable income. You use the tax formulas at the end of 540 and 1040 and add up the percentages that are shown until you are in your income bracket.)

The basic method breaks down into sorting all of your debts(including credit cards) by their tax adjusted interest rates. Allocate out of your monthly salary, the money to pay the minimum amount on each debt. Now, with the remainder, commit the balance of the funds to pay down the debt with the highest tax adjusted interest rate (point of why we sorted them). Normally the cheapest credit card is used to pay for that months expenses (some credit cards give 1 one month interest free grace period on charges accrued during the month). This is where the HELOC becomes useful, and discipline is required. Because HELOCs have a lower effective tax adjusted interest rate than just about any credit card, you can use HELOC money to pay down the cards and effectively use cheaper money. The discipline is in not racking up charges on the card afterwards and keeping your net expenditure, include debt service, lower than your income. You don’t want the balance on the HELOC to grow. Some HELOCs allow you to write a check/use a debit card against them directly, so they can be used almost like a credit card. The other advantage of the HELOC is that it can absorb the shock of a big expenditure better than a credit card. This also allows you to commit more of your cash to paying off the debt instead of having it sit in a checking account.

When it comes to investing, it makes the whole thing above ‘topsy turvy’. Debt allows you to have a higher return on assets (note that I did not say equity). You are using someone elses money to get a return on your investing activity. The only problem is that it introduces risk and on the downstroke (if your return is less than debt interest rate or negative return) it can really bite you. Therefore, in a good market, debt can be used to increase your returns. In a bad market.. be careful..

I hope I didn’t complicate things… and that it is all clearer than mud.

[Coronita]

Raybarnes and ucodegen,

I read both of what you are saying, and both of you are providing very interesting viewpoints. Thanks. I hope the two of you don't end up mudslinging this because I feel that your open discussion is very interesting.

As such, I guess after reading both of your posts, I think things are slightly more complicated for me in that

(1)My mortgage is around 5.5% fixed.

(2)I believe most helocs these days would be around 7%

(3)My itemized tax deductions are consistently phased out to some degree every year.

(4)I end up paying AMT taxes all the time which throws a wrinkle in the deductibility of mortgages/helocs.

In theory, I have cash to pay off the entire mortgage right now, except I was sort of gambling that eventually interest rates would rise to a point such that something like a CD would be above my mortgage rate such that it would make sense to keep taking on this mortgage debt. Currently, I'm divided been some safe CD's with rates below my mortgage and putting money in riskier areas to hopefully get about 8-10%. The later is to primarily beat the mortgage rate with risk, the former is to lose (slightly) but act as a small safety cushion. But what's been throwing a wrench is that with the Fed's cutting rates( was expecting it, but not that much), so are these short term cd's going south (or at least not increasing). I'm beginning to think in these day to play it safe and just pay more of the mortgage principle off sooner.

I'm not sure if this MMA scheme world really make sense for me in particular, as It appears that for me the mortgage and heloc rate would be drastically different. I mean perhaps if there's a 1% difference, but it's closer to 1.5% for me. Yet at the same time, I do have a pretty hefty principle on the mortgage to digest too ($600k to be exact). Hmmm.

 

[Coronita]

Raybarnes and ucodegen,

I read both of what you are saying, and both of you are providing very interesting viewpoints. Thanks. I hope the two of you don't end up mudslinging this because I feel that your open discussion is very interesting.

As such, I guess after reading both of your posts, I think things are slightly more complicated for me in that

(1)My mortgage is around 5.5% fixed.

(2)I believe most helocs these days would be around 7%

(3)My itemized tax deductions are consistently phased out to some degree every year.

(4)I end up paying AMT taxes all the time which throws a wrinkle in the deductibility of mortgages/helocs.

In theory, I have cash to pay off the entire mortgage right now, except I was sort of gambling that eventually interest rates would rise to a point such that something like a CD would be above my mortgage rate such that it would make sense to keep taking on this mortgage debt. Currently, I'm divided been some safe CD's with rates below my mortgage and putting money in riskier areas to hopefully get about 8-10%. The later is to primarily beat the mortgage rate with risk, the former is to lose (slightly) but act as a small safety cushion. But what's been throwing a wrench is that with the Fed's cutting rates( was expecting it, but not that much), so are these short term cd's going south (or at least not increasing). I'm beginning to think in these day to play it safe and just pay more of the mortgage principle off sooner.

I'm not sure if this MMA scheme world really make sense for me in particular, as It appears that for me the mortgage and heloc rate would be drastically different. I mean perhaps if there's a 1% difference, but it's closer to 1.5% for me. Yet at the same time, I do have a pretty hefty principle on the mortgage to digest too ($600k to be exact). Hmmm.

 

[Coronita]

Raybarnes and ucodegen,

I read both of what you are saying, and both of you are providing very interesting viewpoints. Thanks. I hope the two of you don't end up mudslinging this because I feel that your open discussion is very interesting.

As such, I guess after reading both of your posts, I think things are slightly more complicated for me in that

(1)My mortgage is around 5.5% fixed.

(2)I believe most helocs these days would be around 7%

(3)My itemized tax deductions are consistently phased out to some degree every year.

(4)I end up paying AMT taxes all the time which throws a wrinkle in the deductibility of mortgages/helocs.

In theory, I have cash to pay off the entire mortgage right now, except I was sort of gambling that eventually interest rates would rise to a point such that something like a CD would be above my mortgage rate such that it would make sense to keep taking on this mortgage debt. Currently, I'm divided been some safe CD's with rates below my mortgage and putting money in riskier areas to hopefully get about 8-10%. The later is to primarily beat the mortgage rate with risk, the former is to lose (slightly) but act as a small safety cushion. But what's been throwing a wrench is that with the Fed's cutting rates( was expecting it, but not that much), so are these short term cd's going south (or at least not increasing). I'm beginning to think in these day to play it safe and just pay more of the mortgage principle off sooner.

I'm not sure if this MMA scheme world really make sense for me in particular, as It appears that for me the mortgage and heloc rate would be drastically different. I mean perhaps if there's a 1% difference, but it's closer to 1.5% for me. Yet at the same time, I do have a pretty hefty principle on the mortgage to digest too ($600k to be exact). Hmmm.

 

[Coronita]

Raybarnes and ucodegen,

I read both of what you are saying, and both of you are providing very interesting viewpoints. Thanks. I hope the two of you don't end up mudslinging this because I feel that your open discussion is very interesting.

As such, I guess after reading both of your posts, I think things are slightly more complicated for me in that

(1)My mortgage is around 5.5% fixed.

(2)I believe most helocs these days would be around 7%

(3)My itemized tax deductions are consistently phased out to some degree every year.

(4)I end up paying AMT taxes all the time which throws a wrinkle in the deductibility of mortgages/helocs.

In theory, I have cash to pay off the entire mortgage right now, except I was sort of gambling that eventually interest rates would rise to a point such that something like a CD would be above my mortgage rate such that it would make sense to keep taking on this mortgage debt. Currently, I'm divided been some safe CD's with rates below my mortgage and putting money in riskier areas to hopefully get about 8-10%. The later is to primarily beat the mortgage rate with risk, the former is to lose (slightly) but act as a small safety cushion. But what's been throwing a wrench is that with the Fed's cutting rates( was expecting it, but not that much), so are these short term cd's going south (or at least not increasing). I'm beginning to think in these day to play it safe and just pay more of the mortgage principle off sooner.

I'm not sure if this MMA scheme world really make sense for me in particular, as It appears that for me the mortgage and heloc rate would be drastically different. I mean perhaps if there's a 1% difference, but it's closer to 1.5% for me. Yet at the same time, I do have a pretty hefty principle on the mortgage to digest too ($600k to be exact). Hmmm.

 

[ucodegen]

One question.. don’t have much time to answer before turning into pumpkin. Are your retirement accounts (401K, profit share, etc) fully funded?

In a general statement; the CDs are actually losing you money in three ways.
1) They are not keeping up with the mortgage costs they could displace (particularly when you include the fact that the CD’s interest is taxed at income rates, further dropping the yield)
2) Opportunity cost of investing somewhere else with a better yield. Most sweeps at brokerages range from 2.2% to over 5%. This is the ‘safe’ money at a brokerage.. stock yields vary.
3) The value of the Dollars in the CDs is actually dropping. If you look at the foreign exchange rates, the US Dollar is dropping against several currencies.

The MMA scheme w/ the program will not really help. Right off the bat, it adds a very expensive cost on top of everything for the software. Then you have that HELOC with a 21% peak interest rate. The other thing is that you have cash that you could potentially drop into the mortgage anytime you like. Using a HELOC for mortgage payments would actually cost you more.

A better allocation of funds combined with a HELOC for emergency cash would work better.. or using the CDs to pay down the mortgage with a HELOC for emergency cash would also work better. You can definitely get better than 21% peak for a HELOC. The choices all depend upon your risk tolerance and where you feel risk is.

[ucodegen]

One question.. don’t have much time to answer before turning into pumpkin. Are your retirement accounts (401K, profit share, etc) fully funded?

In a general statement; the CDs are actually losing you money in three ways.
1) They are not keeping up with the mortgage costs they could displace (particularly when you include the fact that the CD’s interest is taxed at income rates, further dropping the yield)
2) Opportunity cost of investing somewhere else with a better yield. Most sweeps at brokerages range from 2.2% to over 5%. This is the ‘safe’ money at a brokerage.. stock yields vary.
3) The value of the Dollars in the CDs is actually dropping. If you look at the foreign exchange rates, the US Dollar is dropping against several currencies.

The MMA scheme w/ the program will not really help. Right off the bat, it adds a very expensive cost on top of everything for the software. Then you have that HELOC with a 21% peak interest rate. The other thing is that you have cash that you could potentially drop into the mortgage anytime you like. Using a HELOC for mortgage payments would actually cost you more.

A better allocation of funds combined with a HELOC for emergency cash would work better.. or using the CDs to pay down the mortgage with a HELOC for emergency cash would also work better. You can definitely get better than 21% peak for a HELOC. The choices all depend upon your risk tolerance and where you feel risk is.

[ucodegen]

One question.. don’t have much time to answer before turning into pumpkin. Are your retirement accounts (401K, profit share, etc) fully funded?

In a general statement; the CDs are actually losing you money in three ways.
1) They are not keeping up with the mortgage costs they could displace (particularly when you include the fact that the CD’s interest is taxed at income rates, further dropping the yield)
2) Opportunity cost of investing somewhere else with a better yield. Most sweeps at brokerages range from 2.2% to over 5%. This is the ‘safe’ money at a brokerage.. stock yields vary.
3) The value of the Dollars in the CDs is actually dropping. If you look at the foreign exchange rates, the US Dollar is dropping against several currencies.

The MMA scheme w/ the program will not really help. Right off the bat, it adds a very expensive cost on top of everything for the software. Then you have that HELOC with a 21% peak interest rate. The other thing is that you have cash that you could potentially drop into the mortgage anytime you like. Using a HELOC for mortgage payments would actually cost you more.

A better allocation of funds combined with a HELOC for emergency cash would work better.. or using the CDs to pay down the mortgage with a HELOC for emergency cash would also work better. You can definitely get better than 21% peak for a HELOC. The choices all depend upon your risk tolerance and where you feel risk is.

[ucodegen]

One question.. don’t have much time to answer before turning into pumpkin. Are your retirement accounts (401K, profit share, etc) fully funded?

In a general statement; the CDs are actually losing you money in three ways.
1) They are not keeping up with the mortgage costs they could displace (particularly when you include the fact that the CD’s interest is taxed at income rates, further dropping the yield)
2) Opportunity cost of investing somewhere else with a better yield. Most sweeps at brokerages range from 2.2% to over 5%. This is the ‘safe’ money at a brokerage.. stock yields vary.
3) The value of the Dollars in the CDs is actually dropping. If you look at the foreign exchange rates, the US Dollar is dropping against several currencies.

The MMA scheme w/ the program will not really help. Right off the bat, it adds a very expensive cost on top of everything for the software. Then you have that HELOC with a 21% peak interest rate. The other thing is that you have cash that you could potentially drop into the mortgage anytime you like. Using a HELOC for mortgage payments would actually cost you more.

A better allocation of funds combined with a HELOC for emergency cash would work better.. or using the CDs to pay down the mortgage with a HELOC for emergency cash would also work better. You can definitely get better than 21% peak for a HELOC. The choices all depend upon your risk tolerance and where you feel risk is.

[Coronita]

One question.. don't have much time to answer before turning into pumpkin. Are your retirement accounts (401K, profit share, etc) fully funded?

ucodegen,

To answer #1,#2,#3, yes I'm aware of that they aren't keeping up with mortgage costs, opportunity cost investing elseware with better yield, although I need some safety cushion at least partly, and I'm fully aware of the dollar-peso issue.

….Just trying to figure out out to further reduce my mortgage costs and/or reduce my taxes. Being wage slaves doesn't really help the later. And currently, i(we) are hitting some itemized deduction phase out limits + we ALWAYS get hit with AMT, so not all the mortgage interest and property tax we pay on the mortgage is being fully utilized in the itemized deduction. Notably, while Property Tax is deductible under normal tax calculations, it is not part of AMT tax calculations. So we're losing roughly $12k in deductions under AMT tax calculations. Ironically, using a tax product, I played with some numbers. If I paid more interest expenses in my primary mortgage, I wouldn't hit AMT and my effective tax rate would drop even lower, even with the itemized deduction phase out. (the deduction would be reduced, but not completely phased out).

 

 

Yes, both my wife and I max out the 401k, and ESPP at both respective companies, and there is no other pension plan to contribute. With the recent volatility in the market, the remaining income currently is distributed roughly: $1000/month into a basket of domestic+international index and some specialty funds, $500/month into a 529 plan for a kid, and about $3000/month into a short term reserve. The rest goes into a mortgage+slightly extra principle payments roughly $4000/month ($3600 is roughly the fixed payment, with about add additional $400/month principle on top of that), $1100/month for proptax+hoa+insurance+mellrouse, $1500/month for child daycare expenses, and roughly $500/month in misc expenses. No other outstanding loans exist, though everything possible that can be charged to credit cards without a processing fee is charged to cards that have some rebate program, and each card has 0 balance end of each month.

This doesn't account for any bonus we get, which usually is used only for vacation and additional drips into index/fund basket + short term reserves. Also, December expenses are are higher than average, for obvious reasons. So gifts and charitable contributions usually comes out of the bonus pile, if any. Bonuses have fluctuated in the past, stabilizing recently .Nevertheless, neither of us count on it. We figure no bonus ==> no vacation requiring travel, limited gift giving, and limited charitable contributions.

[Coronita]

One question.. don't have much time to answer before turning into pumpkin. Are your retirement accounts (401K, profit share, etc) fully funded?

ucodegen,

To answer #1,#2,#3, yes I'm aware of that they aren't keeping up with mortgage costs, opportunity cost investing elseware with better yield, although I need some safety cushion at least partly, and I'm fully aware of the dollar-peso issue.

….Just trying to figure out out to further reduce my mortgage costs and/or reduce my taxes. Being wage slaves doesn't really help the later. And currently, i(we) are hitting some itemized deduction phase out limits + we ALWAYS get hit with AMT, so not all the mortgage interest and property tax we pay on the mortgage is being fully utilized in the itemized deduction. Notably, while Property Tax is deductible under normal tax calculations, it is not part of AMT tax calculations. So we're losing roughly $12k in deductions under AMT tax calculations. Ironically, using a tax product, I played with some numbers. If I paid more interest expenses in my primary mortgage, I wouldn't hit AMT and my effective tax rate would drop even lower, even with the itemized deduction phase out. (the deduction would be reduced, but not completely phased out).

 

 

Yes, both my wife and I max out the 401k, and ESPP at both respective companies, and there is no other pension plan to contribute. With the recent volatility in the market, the remaining income currently is distributed roughly: $1000/month into a basket of domestic+international index and some specialty funds, $500/month into a 529 plan for a kid, and about $3000/month into a short term reserve. The rest goes into a mortgage+slightly extra principle payments roughly $4000/month ($3600 is roughly the fixed payment, with about add additional $400/month principle on top of that), $1100/month for proptax+hoa+insurance+mellrouse, $1500/month for child daycare expenses, and roughly $500/month in misc expenses. No other outstanding loans exist, though everything possible that can be charged to credit cards without a processing fee is charged to cards that have some rebate program, and each card has 0 balance end of each month.

This doesn't account for any bonus we get, which usually is used only for vacation and additional drips into index/fund basket + short term reserves. Also, December expenses are are higher than average, for obvious reasons. So gifts and charitable contributions usually comes out of the bonus pile, if any. Bonuses have fluctuated in the past, stabilizing recently .Nevertheless, neither of us count on it. We figure no bonus ==> no vacation requiring travel, limited gift giving, and limited charitable contributions.

[Author]

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