QUOTE (investmart @ Aug 9 2008, 08:53 PM) Hi Garth, Kennicoll,
The advantage is it will improved his cash flow because he will only pay interest on the LOC portion he uses to make an additional mortgage payment instead of interest + principal on that same amount when it is part of his mortgage.
However, it is not a recommended approach by most investors as the improvement in cash flow is small relative to using the same LOC amount to purchase real estate.
Regards,
Neil
Let`s look at the math to see if I am understanding what is being proposed properly.
If Kennicoll makes an extra mortgage payment by borrowing money from a LOC, and then makes an interest payment on the LOC also, remembering that future mortgage payments are not reduced by making the extra payment, Kennicoll`s cashflow is reduced by the amount of both those payments added together.
The gain here is a long term one by virtue of the interest ultimately saved on the mortgage through making the extra mortgage payments. I see this as trading paying dollars today for saving dollars down the road.