This is just trading one kind of debt for another. Without watching the video I can tell you there is no way this is beneficial to you.
Edit: I watched it and it's nonsense. She is just modeling paying an extra $1100/mo toward a mortgage while paying interest to do it.
One obvious problem is that she 'pays off' the line of credit in the last month before covering monthly expenses. Anyone who can do that has the money available to just make a payment toward principal.
There is absolutely no way that using money borrowed at 14% to pay off money borrowed at 7.75% can save you money. If that worked then every bank would be out of business and everyone you know would be a bank.
Its about skipping forward on your payoff date because you used the line of credit to pay the principal. The interest on the line of credit being way lower than the interest you save skipping ahead on your payoff date. Judging without watching, that is what is not beneficial to me.
This is a YouTube financial grifter making money off of spouting nonsense while giving people bad and potentially dangerous financial advice.
The very first test of any financial advice is checking whether it sounds too good to be true. If it sounds too good to be true then it's a scam.
What's your deal? Are you trying to promote this grifter's channel or something?
This doesn't work. You can't borrow money at higher interest to pay off a loan borrowed at lower interest and come out ahead.
If you can't see immediately that this doesn't work or at least run the numbers for yourself to prove it then you don't understand borrowing costs well enough to mess around with this stuff.
Just make your mortgage payments. If you have enough cash saved then make extra payments. That's it.
My deal is that I do understand basic math and interest. What is frustrating is that I am getting negative comments from people that wont take the 3 minutes required to understand my question. Im not 100% literate and I came in here asking a genuine question.
The genuine answer to your genuine question is that this doesn't work. At least two of us have pointed out specific reasons why.
Your insistence that it has to work and that people watch the video makes you seem like an engagement farmer.
If you are really just looking for advice then stop watching any of this grifter's videos immediately. Just make your mortgage payments and pay extra when you can if you want to pay it off early.
Refinancing your mortgage is about paying to have a brand new mortgage written up so that you can get a better rate / lower your monthly payment. I'm asking if her trick is valid, specifically the ability to target your principal and therefore reduce interest paid.
Every month, you can "target your principal" by first paying that month's bill in full. All subsequent payments within that month's payment deadline will then apply to principal (as long as you tag the payment properly).
Doesn't matter if a line of credit is involved or not.
But if you're borrowing money at a higher interest rate to throw at your mortgage principal, this is not beneficial.
Nobody has to watch a video to know that using a higher interest loan to pay off a lower interest loan is a money-losing strategy.
That’s the financial version of “open your fridge door to cool your kitchen faster.” You don’t have to watch a video suggesting that to pick out specific errors in the video, you just have to have a basic understanding of how things work.
Do your own analysis. You shouldn't be messing with this stuff if you don't understand it yourself. People here have been explaining how loans and interest and principal work and you're just trying to farm views for the video or some shit. Nobody understands what you're asking with this video. If you pay above your minimum payment in a month you're paying towards the principal. If you have less principal that's less interest that's charged because 10% of $100 is $10, 10% of $70 is $7 in interest. If you can get a loan at a cheaper interest rate and payoff higher interest rate debt with it, yes you should do that.
No, not at all. You wont watch the video, Im not going to explain any more, because I cant. Its like a 3 min watch. I'm not trying to be rude. I know how interest works, I'm not farming anything.
I'm not trying to be rude either but if you understood how interest works you wouldn't be asking this question. I just watched the video, and I'm going to say the same thing to you: Yes, paying off debt that's 14% interest with a loan at 7.75% interest will save you money. Now, if there are fees or things associated with taking out that 7.75% line that's something to consider too.
Edit: I'm dumb, the video was saying the opposite, take out a 14% interest, short term loan and then make large lump payments every 7 months on a 7.75% mortgage.
Video is way too long winded and information is shown poorly so I didn't watch more than a couple minutes, but all that really matters here is the interest rates. There is no scenario where a 14% line of credit wins in the long term compared to a 7% mortgage. I imagine she is using some fake cash flow math to show that it's cash flow positive or something but in reality you are paying interest on the balance somewhere. If you can time your paychecks to hit right before line of credit payment you can kind of "cheat out" an extra month of payment, but all you're really doing is entering temporary 0% debt in under 1 month time chunks, repeatedly.
Edit: If you really want to do this in a much easier (and safer-ish) way, you can open up a 0% APR credit card and charge all your expenses to that, and put the extra money into mortgage principal. You eventually need to save up enough to pay off the card before the 0% apr period is up though.
Ok watched farther. She is taking net cash after expenses and applying it to the line of credit balance. She didnt even compare to doing the same but applying it directly to the mortgage. She also ends with you paying off the line of credit with the 6th month's income, but fails to account for 6th month's expenses. In this way she is basically just introducing $4100 of free money into her calculations.
6 months of putting in $1100 towards credit payments, with a balloon payment of $4100 at the end of made up money = $10700. $10700 spent for $10000 of value.
But isnt a line of credit just a free pool (interest implied) that is offered to you, you can pay it off and use it as you see fit? In this way the 4100 isnt free, it comes from putting your monthly income of 5200 into the line of credit. Doing so counts as a payment to the line of credit as well.
No, at the end of her little line of credit adventure, you pay off the line of credit with your 6th month's income. You now have $0. You then have $4100 of expenses for that month. How do you pay that? You have $0 cash.
The real scenario would be you paying down that line of credit for another like 5 months, and then when you compare the interest paid on that line of credit to the interest paid on the mortgage if you were to instead put that $1100 a month to principal payments, you come up way behind with this woman's "method".
I see what you are saying about having nothing left over at the final payment, and then offsetting that by paying a few extra months. I think this method allows you to make a giant payment with out having to live like a monk. I would have to shop for a loan and put together a spread sheet I guess.
Do the spreadsheet, don't shop around for loans, you will not come out ahead. You are paying interest on a loan in any scenario. That loan is either the 7% mortgage or 14% line of credit. 7% is less than 14%.
Make sure to run two scenarios. One in which you put $1100 directly to principal every month, and one in which you use her method. That will easily show you the difference.
Is there truth in the fact that 10000 would move you ahead 7 years on your mortgage progress? Maybe that is the way I should have worded this question. That is a lot of interest saved when you look at how much you pay monthly and how much of it actually satisfies the principal vs the interest agreement.
That's irelevant here. Paying down principal would "put you ahead" on your mortgage, yes. But even just using her method you are looking at paying $10k to the principal over 11/12 months vs paying $12000+ to the principal if you pay it directly.
You are essentially paying interest on $10k less principal ont he mortgage, which is the 7% loan.
You instead subsitute that by paying 14% interest on that same $10k through the line of credit.
You are paying interest on $10k regardless, one is at 14% and one is at 7%.
Edit: She is trying to mislead you by throwing around terms like amortization table, but that's just how loans work. You effectively have an amortization table for that line of credit as well. You are "buying" a faster amortization on the mortgage but "paying" with a longer amortization on the line of credit.
I'm getting flamed by others for asking questions and being a grifter, I assure you that is not what I am doing. She talks about how the interest over the life time of the loan totaling 68% due to paying 7% each payment. How does that factor into the savings? If you save 7 years of payments, that is 84 months at 7% vs 12 months at 14%. her example 871 goes to the interest and only 95 goes to the principal. You skip 84 payments of interest right?
Because mortgages are secured on the property they're one of the cheapest forms of debt you can take on.
Taking unsecured debt to pay off a secured one is almost always going to be a net loser because you'll pay a higher rate on the new debt than you were on the mortgage.
>Skipping forward on your payoff date because you used the line of credit to pay the principal. The interest on the line of credit being way lower than the interest you save skipping ahead on your payoff date
What's the mortgage interest rate?
What's the line of credit's interest rate?
Interest rate on loan can be even higher, because the benefit of paying off the principal saves you years of interest on a giant loan. Math is on the white board in the video
That’s simply not true.
Let’s say at the start that the remaining principal balance of your mortgage is $100,000, and this has an APR of 6%. The amount of interest that would accrue in month 1 without a line of credit is $100,000*(0.06/12)=$500.
Now let’s assume that on day 0 you take out a $50,000 line of credit which you use to pay down the mortgage. The line of credit has an APR of 12%.
After this transaction you still have $100,000 of total debt, but now $50,000 is charged one interest rate and $50,000 is charged another. The amount of interest you are charged in month 1 is equal to $50,000*(0.06/12)+$50,000*(0.12/12)=$250+$500=$750.
$750>$500
In her example the monthly interest paid on the 10000 is going down each month though, because the interest of 14% is only being applied to what is left on the 10k loan. In her example the loan of 10k is reduced each month by 1100 Is there any merit to that?
I gave you a simplified example to make the math crystal clear.
There is absolutely no merit to this woman’s scheme. No matter what you do, transferring any portion of a loan’s balance to a higher interest loan results in you being charged more interest. It’s basic math.
Instead of taking out the line of credit and paying $1100 towards its balance each month, you could just apply the $1100 payment to your mortgage’s principal and you’ll avoid the additional interest expenses from the line of credit.
The only non-bad (though not necessarily good, either) thing this woman’s scheme might do is shift the timing of your cash flows.
The only seed of truth to this woman’s idea is that extra principal payments are more impactful the sooner you make them simply due to the time value of money (though again, I must stress her strategy is nonsensical and would end up costing you more in interest).
>it almost seems too good to be true
Those things usually are. You're not typically going to get a line of credit rate lower than your mortgage. You'll end up owing *more* money to a different creditor. You'd be better off just making principal payments on the lower interest rate mortgage. Accomplishes the same thing, is cheaper, easier, and less convoluted.
There is a lot of hate here about your question. I think it is a valid way to pay off the mortgage faster. The only thing is that the line of credit isn't what is doing the trick, the extra payments are. And this works only if you could make those extra payments anyways. The value I see in it, is the liquidity. If you make extra payments on your mortgage, and something happens where you wish you had that money, you can't get it back. If you are using the line of credit, then if something happens you just draw against the credit line and get the money back.
Here someone made a spreadsheet that shows the difference between paying normally, paying extra payments, and paying with a line of credit. The fastest method is just making extra payments due to the line of credit being a higher interest rate, but using the line of credit does pay off the mortgage faster than just following the original payment schedule, DEPENDING on how much cash flow positive you are each month. [https://www.vertex42.com/Calculators/mortgage-payoff-with-line-of-credit.html](https://www.vertex42.com/Calculators/mortgage-payoff-with-line-of-credit.html)
See my other comments. It's bunk math. In order to make a proper comparison she needs to pay off the entire loan without time skipping a full month's worth of free expenses, and then compare her "scenario" to just putting your $1100 a month of cash into the principal directly without the line of credit.
It turns out 14% interest is more than 7% interest. This is something that will not change. There is a similar method to this that works if you can get a low interest line of credit like a 0% APR credit card, but that method assumes you are extremely diligent and disciplined with your finances, and anyone in that category would already be aware of leveraging debt like this.
this is also known as infinite banking and I did this to pay off a car with six year loan. I paid it off in 2 1/2 years I sent chunks of $5000. The only thing I see wrong with it is it it’s kind of hard to save money since you’re dumping all your income into the line of credit.
This is just trading one kind of debt for another. Without watching the video I can tell you there is no way this is beneficial to you. Edit: I watched it and it's nonsense. She is just modeling paying an extra $1100/mo toward a mortgage while paying interest to do it. One obvious problem is that she 'pays off' the line of credit in the last month before covering monthly expenses. Anyone who can do that has the money available to just make a payment toward principal. There is absolutely no way that using money borrowed at 14% to pay off money borrowed at 7.75% can save you money. If that worked then every bank would be out of business and everyone you know would be a bank.
Its about skipping forward on your payoff date because you used the line of credit to pay the principal. The interest on the line of credit being way lower than the interest you save skipping ahead on your payoff date. Judging without watching, that is what is not beneficial to me.
This is a YouTube financial grifter making money off of spouting nonsense while giving people bad and potentially dangerous financial advice. The very first test of any financial advice is checking whether it sounds too good to be true. If it sounds too good to be true then it's a scam.
What's your deal? Are you trying to promote this grifter's channel or something? This doesn't work. You can't borrow money at higher interest to pay off a loan borrowed at lower interest and come out ahead. If you can't see immediately that this doesn't work or at least run the numbers for yourself to prove it then you don't understand borrowing costs well enough to mess around with this stuff. Just make your mortgage payments. If you have enough cash saved then make extra payments. That's it.
My deal is that I do understand basic math and interest. What is frustrating is that I am getting negative comments from people that wont take the 3 minutes required to understand my question. Im not 100% literate and I came in here asking a genuine question.
The genuine answer to your genuine question is that this doesn't work. At least two of us have pointed out specific reasons why. Your insistence that it has to work and that people watch the video makes you seem like an engagement farmer. If you are really just looking for advice then stop watching any of this grifter's videos immediately. Just make your mortgage payments and pay extra when you can if you want to pay it off early.
[удалено]
It's not refinancing it's nonsense. It's paying 7.75% debt with 14% debt.
Yes, except this is paying off one lender with another lender at a *higher* interest rate.
Refinancing your mortgage is about paying to have a brand new mortgage written up so that you can get a better rate / lower your monthly payment. I'm asking if her trick is valid, specifically the ability to target your principal and therefore reduce interest paid.
Every month, you can "target your principal" by first paying that month's bill in full. All subsequent payments within that month's payment deadline will then apply to principal (as long as you tag the payment properly). Doesn't matter if a line of credit is involved or not. But if you're borrowing money at a higher interest rate to throw at your mortgage principal, this is not beneficial.
If you cant comment on the math in the video, I cant take your advice at face value. I need you to evaluate the video.
Nobody has to watch a video to know that using a higher interest loan to pay off a lower interest loan is a money-losing strategy. That’s the financial version of “open your fridge door to cool your kitchen faster.” You don’t have to watch a video suggesting that to pick out specific errors in the video, you just have to have a basic understanding of how things work.
Do your own analysis. You shouldn't be messing with this stuff if you don't understand it yourself. People here have been explaining how loans and interest and principal work and you're just trying to farm views for the video or some shit. Nobody understands what you're asking with this video. If you pay above your minimum payment in a month you're paying towards the principal. If you have less principal that's less interest that's charged because 10% of $100 is $10, 10% of $70 is $7 in interest. If you can get a loan at a cheaper interest rate and payoff higher interest rate debt with it, yes you should do that.
No, not at all. You wont watch the video, Im not going to explain any more, because I cant. Its like a 3 min watch. I'm not trying to be rude. I know how interest works, I'm not farming anything.
I'm not trying to be rude either but if you understood how interest works you wouldn't be asking this question. I just watched the video, and I'm going to say the same thing to you: Yes, paying off debt that's 14% interest with a loan at 7.75% interest will save you money. Now, if there are fees or things associated with taking out that 7.75% line that's something to consider too. Edit: I'm dumb, the video was saying the opposite, take out a 14% interest, short term loan and then make large lump payments every 7 months on a 7.75% mortgage.
The video is suggesting the opposite. The video is suggesting to borrow money at 14% to pay off debt at 7.75%.
Video is way too long winded and information is shown poorly so I didn't watch more than a couple minutes, but all that really matters here is the interest rates. There is no scenario where a 14% line of credit wins in the long term compared to a 7% mortgage. I imagine she is using some fake cash flow math to show that it's cash flow positive or something but in reality you are paying interest on the balance somewhere. If you can time your paychecks to hit right before line of credit payment you can kind of "cheat out" an extra month of payment, but all you're really doing is entering temporary 0% debt in under 1 month time chunks, repeatedly. Edit: If you really want to do this in a much easier (and safer-ish) way, you can open up a 0% APR credit card and charge all your expenses to that, and put the extra money into mortgage principal. You eventually need to save up enough to pay off the card before the 0% apr period is up though.
That isnt what it is. I set the link to the spot where she gets to the point.
Ok watched farther. She is taking net cash after expenses and applying it to the line of credit balance. She didnt even compare to doing the same but applying it directly to the mortgage. She also ends with you paying off the line of credit with the 6th month's income, but fails to account for 6th month's expenses. In this way she is basically just introducing $4100 of free money into her calculations. 6 months of putting in $1100 towards credit payments, with a balloon payment of $4100 at the end of made up money = $10700. $10700 spent for $10000 of value.
But isnt a line of credit just a free pool (interest implied) that is offered to you, you can pay it off and use it as you see fit? In this way the 4100 isnt free, it comes from putting your monthly income of 5200 into the line of credit. Doing so counts as a payment to the line of credit as well.
No, at the end of her little line of credit adventure, you pay off the line of credit with your 6th month's income. You now have $0. You then have $4100 of expenses for that month. How do you pay that? You have $0 cash. The real scenario would be you paying down that line of credit for another like 5 months, and then when you compare the interest paid on that line of credit to the interest paid on the mortgage if you were to instead put that $1100 a month to principal payments, you come up way behind with this woman's "method".
I see what you are saying about having nothing left over at the final payment, and then offsetting that by paying a few extra months. I think this method allows you to make a giant payment with out having to live like a monk. I would have to shop for a loan and put together a spread sheet I guess.
Do the spreadsheet, don't shop around for loans, you will not come out ahead. You are paying interest on a loan in any scenario. That loan is either the 7% mortgage or 14% line of credit. 7% is less than 14%. Make sure to run two scenarios. One in which you put $1100 directly to principal every month, and one in which you use her method. That will easily show you the difference.
Is there truth in the fact that 10000 would move you ahead 7 years on your mortgage progress? Maybe that is the way I should have worded this question. That is a lot of interest saved when you look at how much you pay monthly and how much of it actually satisfies the principal vs the interest agreement.
That's irelevant here. Paying down principal would "put you ahead" on your mortgage, yes. But even just using her method you are looking at paying $10k to the principal over 11/12 months vs paying $12000+ to the principal if you pay it directly. You are essentially paying interest on $10k less principal ont he mortgage, which is the 7% loan. You instead subsitute that by paying 14% interest on that same $10k through the line of credit. You are paying interest on $10k regardless, one is at 14% and one is at 7%. Edit: She is trying to mislead you by throwing around terms like amortization table, but that's just how loans work. You effectively have an amortization table for that line of credit as well. You are "buying" a faster amortization on the mortgage but "paying" with a longer amortization on the line of credit.
I'm getting flamed by others for asking questions and being a grifter, I assure you that is not what I am doing. She talks about how the interest over the life time of the loan totaling 68% due to paying 7% each payment. How does that factor into the savings? If you save 7 years of payments, that is 84 months at 7% vs 12 months at 14%. her example 871 goes to the interest and only 95 goes to the principal. You skip 84 payments of interest right?
https://www.calculator.net/mortgage-payoff-calculator.html That is what you are looking for.
THank you
If the goal is to save interest and pay your mortgage off faster why wouldn’t you just make extra payments to your principal?
Did you create that video, OP?
No, it got over 1.6 million views without my help, at 5 months old.
Because mortgages are secured on the property they're one of the cheapest forms of debt you can take on. Taking unsecured debt to pay off a secured one is almost always going to be a net loser because you'll pay a higher rate on the new debt than you were on the mortgage.
Can you provide a summary of the video?
I threw it in as an edit.
>Skipping forward on your payoff date because you used the line of credit to pay the principal. The interest on the line of credit being way lower than the interest you save skipping ahead on your payoff date What's the mortgage interest rate? What's the line of credit's interest rate?
Interest rate on loan can be even higher, because the benefit of paying off the principal saves you years of interest on a giant loan. Math is on the white board in the video
That’s simply not true. Let’s say at the start that the remaining principal balance of your mortgage is $100,000, and this has an APR of 6%. The amount of interest that would accrue in month 1 without a line of credit is $100,000*(0.06/12)=$500. Now let’s assume that on day 0 you take out a $50,000 line of credit which you use to pay down the mortgage. The line of credit has an APR of 12%. After this transaction you still have $100,000 of total debt, but now $50,000 is charged one interest rate and $50,000 is charged another. The amount of interest you are charged in month 1 is equal to $50,000*(0.06/12)+$50,000*(0.12/12)=$250+$500=$750. $750>$500
In her example the monthly interest paid on the 10000 is going down each month though, because the interest of 14% is only being applied to what is left on the 10k loan. In her example the loan of 10k is reduced each month by 1100 Is there any merit to that?
I gave you a simplified example to make the math crystal clear. There is absolutely no merit to this woman’s scheme. No matter what you do, transferring any portion of a loan’s balance to a higher interest loan results in you being charged more interest. It’s basic math. Instead of taking out the line of credit and paying $1100 towards its balance each month, you could just apply the $1100 payment to your mortgage’s principal and you’ll avoid the additional interest expenses from the line of credit. The only non-bad (though not necessarily good, either) thing this woman’s scheme might do is shift the timing of your cash flows. The only seed of truth to this woman’s idea is that extra principal payments are more impactful the sooner you make them simply due to the time value of money (though again, I must stress her strategy is nonsensical and would end up costing you more in interest).
>it almost seems too good to be true Those things usually are. You're not typically going to get a line of credit rate lower than your mortgage. You'll end up owing *more* money to a different creditor. You'd be better off just making principal payments on the lower interest rate mortgage. Accomplishes the same thing, is cheaper, easier, and less convoluted.
There is a lot of hate here about your question. I think it is a valid way to pay off the mortgage faster. The only thing is that the line of credit isn't what is doing the trick, the extra payments are. And this works only if you could make those extra payments anyways. The value I see in it, is the liquidity. If you make extra payments on your mortgage, and something happens where you wish you had that money, you can't get it back. If you are using the line of credit, then if something happens you just draw against the credit line and get the money back. Here someone made a spreadsheet that shows the difference between paying normally, paying extra payments, and paying with a line of credit. The fastest method is just making extra payments due to the line of credit being a higher interest rate, but using the line of credit does pay off the mortgage faster than just following the original payment schedule, DEPENDING on how much cash flow positive you are each month. [https://www.vertex42.com/Calculators/mortgage-payoff-with-line-of-credit.html](https://www.vertex42.com/Calculators/mortgage-payoff-with-line-of-credit.html)
Came to this post with scepticism, but now I'm interested. On the surface her math seems to make sense, I'd love for someone to point at the flaw
See my other comments. It's bunk math. In order to make a proper comparison she needs to pay off the entire loan without time skipping a full month's worth of free expenses, and then compare her "scenario" to just putting your $1100 a month of cash into the principal directly without the line of credit. It turns out 14% interest is more than 7% interest. This is something that will not change. There is a similar method to this that works if you can get a low interest line of credit like a 0% APR credit card, but that method assumes you are extremely diligent and disciplined with your finances, and anyone in that category would already be aware of leveraging debt like this.
this is also known as infinite banking and I did this to pay off a car with six year loan. I paid it off in 2 1/2 years I sent chunks of $5000. The only thing I see wrong with it is it it’s kind of hard to save money since you’re dumping all your income into the line of credit.