As I discussed a couple weeks back, we are to believe that the use of a HELOC (Home Equity Line of Credit) can somehow help accelerate the paydown of our mortgage.
MMA ‘magic’ comes from turning one’s idle cash at zero interest in their checking account to yield the same as their mortgage, right? And the HELOC shuffle is merely to make up the difference from ‘average balance’ to maximum balance in the checking account.
From there, the math is simple.
Following the standard 6% example, with a 10.4 year payback, the $3500 cost for the program is $37.77/mo or $453/yr. Since that fee becomes part of the debt, there’s no disputing this, right? This is only $4713 for the whole time, not like I’m backending to pay the fee in the last months, in which case I’d claim $6415, or I could use the same math the agents do to show how $250 shoes really cost $1500, and show that the $3500 fee really costs $20,157. (But I’d never suggest that.)
Now, let’s ask, what is the maximum money that can be extracted using this plan? Simple, right? $5000 is the monthly cash flow. If I concede that the sophisticated algorithms and precise monthly timing can simply make the $5000 earn 6%, well, that’s $300/yr, no? And isn’t that the [absurd] maximum that can ever happen? $5000 goes to the mortgage on day one. All bills are due on day 31, but by the time the checks clear, the HELOC has accrued no interest, and that $5000 has effectively earned 6% through the year.
So to summarize;
The logical, mathematical limit of HELOC gain is $300/yr.
The cost of MMA is $453/yr.
quod erat demonstrandum
(Note: the above post was the concept that grew into my guest post on Tracy Coenen’s site, the Fraud Files blog, if you wish, you can read the longer, more detailed, article there)
Next week – some more MMA hyperbole and obfuscation, not to mention the smoke or the mirrors.