Recycling Your Mortgage Money
Lin Ennis
October 28, 2008
If you´ve read widely about early mortgage payoff scenarios, you´ve probably heard of using a HELOC (home equity line of credit) to pay down your mortgage´s principal faster. It´s an ingenious concept really, because you don´t have to come up with the money all at once to make a lump sum payment on your mortgage.
No. You make a "draw" against the equity on your home, facilitated by the bank´s extension of a HELOC to you. Applying the draw all at once to the principal of your home allows you to take advantage of a principle called "the velocity of money." Simply put, more money applied sooner to your loan reduces the amount of interest pay back you´re responsible for more quickly than paying the same amount but over a longer period of time. For example, paying $5000 now will save you more money than will paying $500/month for 10 months.
The best part about it is, unless your home has skyrocketed in value and all your equity has come from increasing property values, these are the same dollars you once paid on your home your mortgage that you are drawing out and paying again on your mortgage!
The equity line gets paid back gradually over a period of a few months by the difference between your essential monthly expenditures and your earnings, what we euphemistically call "discretionary income." The whole process happens rather automatically, so it isn´t necessary to compute your leftover money and write a check to your equity line.
However, this is the juncture at which many people find the aid of software most reassuring. I can relate to that, because even though I cut nearly $70,000 off my mortgage interest in my first two years of using these techniques, I was winging it. I pulled numbers out of the air and they worked. Hundreds of families who´ve used my subsequent book Let your Mortgage Make you Rich! have agreed the rules of thumb offered in it work in most situations. Still, I get questions every week asking "How much should I transfer?"
You see, the entire money recycling system (I call it "equity cycling") is contingent upon funneling all your money through 3-4 accounts, moving it when it´s most advantageous for you. When banks do it, they call it sweeping. It gives you the idea of a continuous connection from one account to another and another. And that´s what it is. You control the process, but the software suggests the timing and dollar amount.
So how much do you move when? That depends upon how much you have (earn), how much you owe (mortgage and all other debts) and your regular expenditures (bills, cash). That´s why there isn´t an answer. The answer has to be calculated for the family using the equity cycling technique. Hence the attraction to software.
Until now, software to manage such feats of financial savvy have cost in the range of $1800-$10,000. Yes, $10,000. Perhaps the most popular one is the money merge account sold by independent representatives of United First Financial. They may have well over 20,000 distributors, so it would be odd if you haven´t heard of their slick analysis and $3500 product.
Since I already told you software isn´t essential, you may wonder whether there are alternatives. I started without. But many players have come into the market now. I would recommend you Google "equity cycling" to examine alternatives. Though I´ve met a few people who think $3500 is an easy price to save $100,000, I always ask, "Wouldn´t it be better still to find something for under $1000 and still save $100,000?" (We´ve developed a crazy notion that if something is tax deductible or pays for itself, it´s free. It isn´t. You still have to pay for it! So be just as smart as if it weren´t paying for itself or tax deductible!)
And if you´d like to see one of the smartly designed softwares demonstrated, you can register for a webinar at a time suitable to you, online at info.equitycycling.com/registration.html. (There´s also a link to a quick, free analysis on the same page.)
No. You make a "draw" against the equity on your home, facilitated by the bank´s extension of a HELOC to you. Applying the draw all at once to the principal of your home allows you to take advantage of a principle called "the velocity of money." Simply put, more money applied sooner to your loan reduces the amount of interest pay back you´re responsible for more quickly than paying the same amount but over a longer period of time. For example, paying $5000 now will save you more money than will paying $500/month for 10 months.
The best part about it is, unless your home has skyrocketed in value and all your equity has come from increasing property values, these are the same dollars you once paid on your home your mortgage that you are drawing out and paying again on your mortgage!
The equity line gets paid back gradually over a period of a few months by the difference between your essential monthly expenditures and your earnings, what we euphemistically call "discretionary income." The whole process happens rather automatically, so it isn´t necessary to compute your leftover money and write a check to your equity line.
However, this is the juncture at which many people find the aid of software most reassuring. I can relate to that, because even though I cut nearly $70,000 off my mortgage interest in my first two years of using these techniques, I was winging it. I pulled numbers out of the air and they worked. Hundreds of families who´ve used my subsequent book Let your Mortgage Make you Rich! have agreed the rules of thumb offered in it work in most situations. Still, I get questions every week asking "How much should I transfer?"
You see, the entire money recycling system (I call it "equity cycling") is contingent upon funneling all your money through 3-4 accounts, moving it when it´s most advantageous for you. When banks do it, they call it sweeping. It gives you the idea of a continuous connection from one account to another and another. And that´s what it is. You control the process, but the software suggests the timing and dollar amount.
So how much do you move when? That depends upon how much you have (earn), how much you owe (mortgage and all other debts) and your regular expenditures (bills, cash). That´s why there isn´t an answer. The answer has to be calculated for the family using the equity cycling technique. Hence the attraction to software.
Until now, software to manage such feats of financial savvy have cost in the range of $1800-$10,000. Yes, $10,000. Perhaps the most popular one is the money merge account sold by independent representatives of United First Financial. They may have well over 20,000 distributors, so it would be odd if you haven´t heard of their slick analysis and $3500 product.
Since I already told you software isn´t essential, you may wonder whether there are alternatives. I started without. But many players have come into the market now. I would recommend you Google "equity cycling" to examine alternatives. Though I´ve met a few people who think $3500 is an easy price to save $100,000, I always ask, "Wouldn´t it be better still to find something for under $1000 and still save $100,000?" (We´ve developed a crazy notion that if something is tax deductible or pays for itself, it´s free. It isn´t. You still have to pay for it! So be just as smart as if it weren´t paying for itself or tax deductible!)
And if you´d like to see one of the smartly designed softwares demonstrated, you can register for a webinar at a time suitable to you, online at info.equitycycling.com/registration.html. (There´s also a link to a quick, free analysis on the same page.)
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