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
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
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.
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.
Hi Garth,
Yes, if future mortgage payments are not reduced by making the extra payment then you are correct. However, I thought it depends on the timing and just before renewal for example it does affect your mortgage payment. The idea is simple: compare interest payments (LOC) VS. interest + mortgage payments (mortgage).
Regardless, I agree it`s a bad choice in 99% of the cases as it is not the reason investors apply for LOC
Regards,
Neil
Yes, if future mortgage payments are not reduced by making the extra payment then you are correct. However, I thought it depends on the timing and just before renewal for example it does affect your mortgage payment. The idea is simple: compare interest payments (LOC) VS. interest + mortgage payments (mortgage).
Regardless, I agree it`s a bad choice in 99% of the cases as it is not the reason investors apply for LOC
Regards,
Neil